PBPB - NASDAQ

Good afternoon, everyone, and welcome to Potbelly Corporation's Third Quarter 2023 Earnings Conference Call. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode and the lines will be open for your questions following the prepared remarks. On today's call, we have Bob Wright, President and Chief Executive Officer; Steve Cirulis, Senior Vice President and Chief Financial Officer; and Adiya Dixon, Chief Legal Officer and Secretary at Potbelly Corporation. At this time, I'll turn the call over to Adiya Dixon. Please go ahead.

Good afternoon, everyone, and welcome to our third quarter 2023 earnings call. By now, everyone should have access to our earnings release and accompanying investor presentation. If not, they can be found on the Investor Relation section of our website. Before we begin our formal remarks, I need to remind everyone certain comments made on 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 2023 or any other future period 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 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. During the call, there will also be a discussion of some items that do not conform to U.S. Generally Accepted Accounting Principles or GAAP. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the press release and investor presentation issued this afternoon, both of which are available in the Investors tab of our website. With that out of the way, I’ll like to turn the call over to Potbelly President and CEO, Bob Wright.

Thank you, Lydia. Good afternoon and thank you for joining our call today. We delivered strong third quarter results demonstrated by solid top line improvement and 8% same-store sales growth. Notably, our traffic growth remained a strong contributor as we continued to take traffic share from the fast casual category each week through the quarter. We also grew shop level margins through continued leverage across food and labor costs, resulting in a 400 basis point improvement year-over-year. I'm proud to say that these results were driven by the cumulative effect of our disciplined strategy and execution over the past many quarters, driving our confidence in the sustainability of the results we've achieved thus far. We remain focused on achieving the long-term growth potential of this amazing brand. As we look forward to the end of the year and into 2024, we will continue to execute against our five pillar strategic plan to achieve traffic driven profitability and unit growth. This includes crave-able quality food at a great value, people creating good vibes, customer experiences that drive traffic growth, digitally driven awareness and connection, and franchise focused development. With that, let me update you on our ongoing initiatives to support these pillars, starting with the Potbelly digital experience. We're pleased with another quarter of outstanding performance in our digital business, driven by meaningful progress and our Perks Loyalty Program. All-in-all, our digital business represented approximately 37% of our total shop sales during the quarter, an increase of approximately 150 basis points relative to the same period last year. Importantly, we also continue to see a shift in our digital business away from third-party channels and towards Potbelly-owned app, web, and Perks originated orders. We are committed to serving our customers with the occasions that best meet their needs each time they visit Potbelly, including our unique in-shop fast casual dining experience and through the variety of order occasions delivered by the Potbelly digital experience. During the quarter, we were thrilled to see growth in both verticals. Turning to our Potbelly Digital Kitchen, the rollout of PDK to our existing is progressing as planned, and we will continue the deployment of PDK across our system of existing shops, the standard in every new franchise location. More importantly is the benefit of PDK to our operations, which are clearly demonstrated not only by the ongoing growth of our digital business and our ability to handle the incremental throughput, particularly during peak periods, but also operating efficiency and improvements in the customer experience from orders ready on time to accuracy of food and quality scores. Importantly, we continue to leverage the throughput learnings from PDK and shops yet to be rolled out in our ongoing effort to drive traffic. Our traffic driven foundation to sales growth continues to be supported by our marketing initiatives, including LTOs and digital only promotions designed to drive traffic, value and excitement for our customers. During the quarter, we introduced our latest underground menu item with the Lucky 7 sandwich, uniting all seven meats from two of our most popular sandwiches, the Italian and arec. Overall, our underground menu introductions available only on the Potbelly app continue to be among the most searched menu items in our digital channels. As we look ahead, we will continue to focus on food and marketing innovation to further drive growth of our Perks Loyalty Program and digital channels. Lastly, let me share some exciting updates to our franchise growth acceleration initiative or FGA. As we mentioned on our last call, during the quarter, we signed a 27 unit deal in Maryland through a partnership with our company founder, Bryant Keil. During and subsequent to the end of the quarter, we signed multiple additional new development agreements, including a 40-unit deal that is comprised of four refranchised shops and a commitment to develop 36 new shops in both Ohio and Florida. Our shop development commitments now totaled 150 shops to date. I'm proud of what our franchising team has accomplished in such a short period of time. We remain focused on achieving our 10% unit growth in 2024. We continue to have a highly active and fluid pipeline of qualified Potbelly franchise candidates. And when combined with our unique brand and proven business fundamentals, we believe we have the foundation and the right team in place to drive long-term growth. Looking forward, we will continue to emphasize our franchise focus and build the organization's capability to support our franchise growth as we head towards 2,000 units in the U.S. We look forward to sharing additional updates on our next calls as more SDAA's or shop development area agreements are finalized. Finally, let me reiterate how proud I am of our Potbelly team. Their hard work and commitment to our unique brand have resulted in a strong third quarter performance and they do so by carrying out our mission to delight customers with great food and good vibes, creating a distinct and differentiated fast casual experience for each of our customers from their 1st moment to their last bite. With that, I will now turn the call over to Steve to detail our financial performance for the third quarter.

Thank you, Bob. Good afternoon, everyone. Revenues in the third quarter increased approximately 3% of $120.8 million, driven by same-store sales growth of 8%, resulting in average weekly sales of approximately $25,190, partially offset by the short-term revenue impact of our recent refranchising transaction. System wide sales of $138.2 million grew by approximately 7%. Traffic continues to be a strong contributor to same-store sales growth as we drive demand through providing our customers value for what they pay and showcasing compelling marketing through our digital channels. Additionally, we implemented modest price increases to mitigate increases in input costs and will continue to do so as necessary, although Q3 saw appreciable inflation deceleration. Our digital business continues to grow and currently represents approximately 37% of revenue, an increase of 150 basis points versus last year, predominantly through our owned channels. We attribute this growth to our progress in enhancing the overall Potbelly digital experience, dedicated efforts to increase Perks Loyalty Program member acquisition and activation, and engagement through targeted digital promotions and advertisements. Turning to expenses, food, beverage, and packaging costs were 27.8% of shop sales, a 210 basis point improvement versus the prior year period. Overall, Q3 commodity inflation was greatly improved at minus 1.5% versus last year. Our grocery category, which includes produce, soup, condiments, and chips, are the largest input cost increases, with meat, primarily chicken, retreating year-over-year. Labor expenses were 28.9% of sales, a 200 basis point improvement versus the prior year period. This improvement is attributed to sales leverage, along with continued optimization of our hours-based labor guide. We continue to see wage rates moderate and expect this to continue to normalize through the end of the year. Occupancy was 10.7% of sales, a 90 basis point improvement versus the prior year period. The improvement was driven by top line leverage and the refranchising of our New York City market, which carried higher than average occupancy costs. Other operating expenses were 18% of sales, a 100 basis point increase versus the prior year period. This was predominantly due to increased brand fund spend. Overall, shop level margins in the third quarter were 14.6%, an increase of 400 basis points year-over-year. I'll cover our forward looking guidance in a moment, but as we look to our fourth quarter, last year we received one time benefits to our restaurant margin totaling 90 basis points that we do not expect to repeat this year. These results truly demonstrated increasing power of the Potbelly economic model with sustainable top line growth fueled by the effectiveness of our marketing efforts, including our Perks Loyalty Program. Operations focused on customer experience and throughput, prudent cost control and normalization of inflationary pressures. That said, we still have more work to do and are focused on achieving our 2024 shop level margin target of 16%. General and administrative expenses were 9.8% of revenue. The year-over-year increase in G&A was driven primarily by higher bonus accruals as we outperformed our targets in the quarter and increased headcount from a year ago to fuel our development efforts. As we discussed last quarter, we continue to believe general and administrative expenses as a percentage of system wide sales is a more applicable way to view our business as we become more franchise based over time. For the third quarter, general and administrative expenses were approximately 8.6% of system wide sales. We are encouraged by these results as we continue to leverage sales, control costs, and build the development infrastructure ahead of our increasing pace of unit growth. We reported net income of $1.5 million for the quarter. Adjusted net income was $1.1 million, an $800,000 improvement versus the prior year period. Third quarter adjusted EBITDA was $7.3 million or 6% of total revenue. This was a $2.6 million increase year-over-year and a 200 basis point improvement on the margin. Turning to our outlook, for the full year 2023, our outlook includes AUV of $1.29 million, same-store sales growth between 11.5% and 12%, stock level margins between 13.4% and 13.9%, adjusted EBITDA of between $25.9 million and $27.9 million. For the fourth quarter of 2023, we are currently forecasting the following. Average weekly sales between $24,250 and $24,750, same-store sales growth between 4% and 6%, shop level margin between 12.5% and 14.5%, and adjusted EBITDA between $5 million and $7 million. With that, I'll turn the call back over to Bob.

Thanks, Steve. Our third quarter results demonstrated what the Potbelly business model is capable of, and with our momentum continuing into the fourth quarter, we believe we have line of sight to achieving the full year 2024 growth targets. Our pipeline of additional shop development area agreements remains strong and we look forward to sharing additional updates in the coming quarters. While we've achieved a great deal in the recent quarters, I can assure you that we are only just getting started. With that, we're happy to answer any questions. Operator, please open the line for questions.

[Operator Instructions] Today's first question comes from Todd Brooks with The Benchmark Company. Please go ahead.

Good afternoon and congratulations on the results. Good progress. Couple of quick questions and maybe the easiest way to talk to it is the 4% to 6% same-store sales guidance for the fourth quarter. Can you disaggregate for us kind of pricing, traffic and mix assumptions within that 4% to 6% or if it's easier to talk about a pricing waterfall, in the four quarters, we can attack it that way as well.

Sure, Todd. Why don't I start with pricing itself and then we can kind of get into some of the other components. So, for the quarter, we're looking at a 4% overall price increase, and that includes some of the carry forward from the prior year. We had a pricing action early in P11 here in the quarter, which was a 1.5% price increase. So, you can think about our guide at an 8%, same-store sales rate, if you look at our guide, at four to six same-store sales. And then you take a look at our pricing of four, the rest ends up being a blend of traffic and mix shift. And no, we've got a business that we feel like is moving in the right direction here and is continuing, it's strength. We know the category is roughly flat to negative on traffic. I think we like where we are north of that. So, we don't breakdown all the components beyond there, but if you take your 4% to 6% range on the same-store sales and our 4% price increase that should help you get to where you need to go.

And then, your consumer, I think last quarter you might have talked about, just a little bit of I don't even know if it was check management versus people opting into many as an option. What do you think about how they're building check? Are they behaving with a similar fashion as they were maybe at the outset of the year or what are you watching on the Potbelly consumer?

Yes, it's a great question, Todd. And I think some of it actually relates to build on what Steve was talking about, but we see a couple of things going on in there. Yes, there is a little bit of a size shift that seems to continue from our bigs and originals to our skinnies when you look at the traffic growth that we have and the amount of business that we're driving, especially with the newer Perks consumers. We're not 100% sure that that is actually a change in behavior of existing consumers or is it a change in the profile of our total consumer set. But it's not at all unhealthy for us. It's not driving a significant change in check. And the other thing is that it's actually slightly better on margin as you move through that. There's another shift that's happening. If you heard in my prepared remarks how the majority of our digital business is now coming through our own channels, our Perks app and web channels, and that's the first time you've heard us say that. That means that there's a shift by channel away from the DSPs,, so there's third-party delivery orders. Those are always going to carry a higher check because of how we price it to offset the commission that we pay the DSPs. So again, it can have some deflationary impact on the check from a penny profit. We've engineered that to be just about even for us. So, there's no profitability concern, in fact again, from a margin perspective that can be somewhat of a benefit. But because of that slight channel shift, you can see some adjustment in that check too. So, what I think is the broader question for the consumer in general is are we seeing really significant shifts in consumer behavior, in their spending patterns and what's going on with traffic patterns and our traffic patterns compared to the fast casual traffic. And the answer is our consumer seems to be hanging in there really well. Look, they've got the jobs market is strong. They've got the income to support it. The most revised savings numbers suggest that the consumer in this $7,500,000 plus range has not been impacted by the pricing that we've taken anyway to offset inflation over the last 12 months.

That's great. And one final one and then I'll jump back in queue. You just touched on Perks as an engine. Are we I know -- I've asked this in the past, are we closer to maybe getting some quantification on what Perks means to Potbelly either size of membership or continued commentary about membership growth rates. Just wondering, if we can get a better understanding of how important of an engine it is? Thanks.

Yes, especially when it's again, we are very pleased with just how powerful Perks continues to be for us. And when you see that shift to our own channels over the DSPs. Perks is at the heart of that, and we're seeing growth in there. The other thing that we're very excited about is the growth in Perks acquisition and in fact the growth in the rate of Perks acquisition. We are seeing year-over-year a 60% increase, 60% plus increase in the acquisition rate for Perks members coming through those promotional activities. Now, it's still our job to convert those to more and more frequent users. We still nurture that relationship. We've got the nurturing flows that we've talked about in the past. But filling the funnel, which is the biggest first step for us has shown a lot of momentum here in the last well in the last quarter, but in the last six months too. So, we're really pleased with that acquisition rate.

The next question comes from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.

Thanks. And I'll add my congratulations on terrific results. I want to start with your labor costs. You had pretty impressive year-over-year improvement. But I think even from a sequential standpoint, 150 basis points lower than Q2. Wanted to just understand the factors involved in seeing that type of improvement. Is that the Digital Kitchen and kind of changes in the make line that we're starting to see that kind of transform the business. But any color that you could add to what you're seeing there would be appreciated.

Great. Welcome, Jeremy. Thanks for the question. Yes. I'll start. I think just to give you the headlines in terms of the shift we we've seen. Some of it comes from some of the sales leverage we get, obviously, on the fixed element of labor, that's a benefit to us. But also, I think primarily, where we see a lot of benefit is in the management of the hours at the shop level and the continued optimization of our hours-based labor guide. Also, I think labor inflation for us has been, fairly consistent, certainly off its peak from, probably about 18 months ago. And that having that visibility is helpful. We've also experienced, turnover rates, which are certainly lower than from the data we've seen, lower than that of the fast casual industry. And so, all of those elements, I think would be contributing factors to that improvement on the labor line that we're seeing.

Yes, Jeremy, nothing like the continued momentum on the top-line, really stable associate and management turnover and retention and we get the efficiency that goes with that. You asked specifically about PDK. The rate of our continued implementation of PDK is really just isn't rapid enough to influence the entire portfolio that quickly. But what we are seeing is we continue to see the savings that we seek out of the labor that goes with that efficiency on the back line. We capture most of that in the first two or three weeks after inning PDK, getting those behaviors changed and then that becomes the new normal. And the better part of that, as we've said in previous quarters, we are continuing to expand the rollout of PDK and we do it by prioritizing those most capacity constrained shops. Those are the ones that are going to be very peaky at dinner or peaky at lunch where we have that longest line, because we often talk about PDK with the back line digital components and helping us with all that digital businesses coming through those channels. PDK also includes a handheld order tablet that helps us move the frontline. So, that's why we've prioritized those shops. And when we put it in there, we get the benefit of being able to move that frontline and extract even more throughput. And, of course, there's a benefit that goes with that. The last thing I'd say, we have to give our operations team a lot of credit here. They're becoming more seasoned. The multi unit operators at the district manager and director level have been in position for a long time. They really are gelling as a team and their management of the labor and the stability of that management continues to help us as well.

So as a follow-up question, as we look towards getting to that 15% shop level margin target for FY 2024. Why don't I just understand in terms of the component parts here, your guidance for FY 2023 is 13.4% to 13.9% shop level margin? In terms of which of the line items you expect to generate that kind of 200 to a little bit over 200 basis point improvement in margins next year. Where do you expect the primary contributing factors to come from? Is that still labor and occupancy leverage or what are kind of the factors you expect to drive most of those gains?

I think it's you hit on two of them, I can give some more color. I think certainly on the labor side, we expect to get more efficient and effective through PDK as well as some additional efforts to continue to optimize labor in the shops as Bob described. That will be a major contributor to it. We frankly, on the sales leverage, they'll flow through the occupancy. That's going to be another kind of a benefit to us. But also, we expect to see continued benefit to us in terms of food input costs that will be a contributor as well. And then when you look at the business and you say, okay, well, there's not one silver bullet for us that's going to push the margin all the way. It's going to be a contribution from a few other things too. So, for example, we expect our catering business to continue to grow that tends to be a healthy margin business for us. We still have runway yet to go in our CBD portfolio. And that still continues to be a tailwind for us as there are return to work, there's return to work momentum that continues to build. That's going to be a component for us as well. And then, we also will continue to price strategically to continue to outrun inflation. And we feel like, while we won't expand margin because of that, we will remain competitive and being competitive means for us kind of being at or below where our fast casual competitors are, and we've seen some benefit on traffic from being in that position. And so added traffic, obviously, creates the leverage that then starts to flow through the rest of the P&L. Where we typically don't get, a ton of additional leverage like we used to before the pandemic is in our other OpEx line, about half of it's fixed and the other half is floats with the business. That's where our brand fund sits. That's where our fees for third-party delivery and so forth sit. So, we might get a little bit of benefit there if we see continued shift away from the DSP component of things. But it's really that amalgamation of all those components that I described that'll help us get to that sixteen. And by the way, based on our momentum and our trends, we feel like we've got that 16% clearly in our sights for next year.

Another question here, just in terms of the sale of the color that you provided in the queue here on the sale of the Ohio locations, $3,300,000, substantially higher, I think that's what, $825,000 a unit, substantially higher than what you realized on your first two deal this year? Wanted to understand first, what should we be expecting as you look to refranchise approximately 100 locations over the next few years? And then what was driving specific to these deals? Why the Ohio locations were so much more highly valued than the other locations? I know that New York City locations were not super profitable. And that's probably part of the answer, but wanted just a little more color there.

Yes. Look, that's the primary element that goes into valuation of a franchised restaurant concept and its trading. And the other thing that I think affects that is the timing. If you look at this business continues to get stronger and stronger. And so our willingness to sell franchise or company units into the franchise system is really driven by our desire to continue to develop to spur that development. In terms of the value difference, each deal is going to be different, each deal has to be rooted in the economics, so, that particular portfolio, and the history of that particular portfolio. So, that really is the difference between those. But I can tell you that we're excited about each one. We would only do one if we're accretive to the business. Overall, especially with the growth that comes with them. But, yes, you spotted it in the queue that most recent deal with Royal Restaurant Group, we're very pleased with. To sell 4 units, it's 17 additional units in Central Ohio to be developed there. And then of course the remainder of the other 19 down in Florida in a group that the CEO, the CFO and COO, all work together in one of QSR's largest franchise groups in a multi state environment done development before. And we're just incredibly excited to see this quality of franchisees coming to the brand.

Yes, it sounds tremendous. And if you can add color there on just the franchisee pipeline, are you seeing a different type of franchisee that's interested in the business now as opposed to six or nine months. Are you anticipating or looking for slightly larger partners like RRG, or are you still looking to fill kind of more mid tier, mid scale franchisees?

Yes. I think there's kind of two parts to the answer to your question. First one is just in the quality of franchise candidates that we're saying we are very excited to see the quality of our franchise candidates just continue to improve. And I mean that with all the same excitement we've stated about all the previous ones that have joined the system. The brand is getting stronger, performance is getting stronger and candidly franchisees follow the lead of other franchisees that they respect. And so, as you strengthen the system, you tend to strengthen the candidate pool. And I'm glad we're enjoying that natural trend and we're taking advantage of it. We've also invested heavily in our development team to be able to recruit the best. So that's very exciting for us. 40 units is a big deal. In fact you probably could find me saying in the past that we wouldn't do very many of those, because there aren't that many groups that can fulfill that much development in that shorter period of time. As a reminder, we've always said that our development deals, we'd like them to be about one a unit a year unless you have more than eight units and then it's an eight year limit to finish developing that out. And by and large, we've stayed really true to that development pipeline and pace. Well, there aren't many groups that can develop that many units that quickly. This group can, we believe that 100% so today. And so I think over time you're still going to see a blend. We'll see some in the mid to high-single-digit number of units deals. We'll see some in the double-digit deals and there may be one or two more of this scale depending on the candidate that comes in and their capabilities. It's all about building that compounded growth that comes with the number of deals that we're able to keep doing. So, generally speaking, kind of qualitatively, I'm very pleased with what we can see in the pipeline from this point forward, really pleased with the team and the work they've done so far.

The next question is from Mark Smith with Lake Street Capital. Please go ahead.

Kind of a follow-up to that last question. Are there any characteristics of the restaurants that you've been selling or maybe the franchisees are more interested in? For instance, are we looking at lower volume or lower profitability in these restaurants that you're selling or the franchisees like kind of cleaner ones, anything that you can call out there?

Mark, great question. There is some difference and you kind of see that reflected in the asset purchase numbers that we've got in the queue. But it's not necessarily driven by the franchisees desire for a particular type of restaurant. A lot of it is geography. Where are they? Where do they want to develop? Do they believe they understand the marketplace? In many cases, where do they have existing or previous businesses, because that's their comfort level and that certainly has been the case with the refranchise deals that we've done so far. I'll tell you, we have had an increasing amount of interest in just direct development. And for those that do contact us sometimes that are mostly focused on refranchising that those conversations don't go very far. There are a lot of QSR brands and other brands that are doing and have done refranchising where truly is kind of an EBITDA acquisition by the franchisee looking for growth, so that they can increase value and resell the business at some point in the future. And those just all tend to be very long conversations with us because we're a growth brand. And you see that in this RRG deal, 36 new units after buying 4. They would tell you they just love the idea of having a base of operations even four units for them was exciting. They have managers to start with -- they have places where they can train as they build all these new units. They've got a running start in a market that they really love in Central Ohio. So, they didn't need a large acquisition, but they didn't really appreciate the chance to have a small acquisition to build from.

Perfect. And then next question, as we look at the marketing grants on contribution, do you now have that kind of where you want it or do you think there's opportunities for it to creep higher? And then maybe discuss benefits that you as well as your franchises are seen from that?

Yes. I think we like where we are today. We reserve the right both publicly and with our franchisees to continue to invest more. Our expectation is and David's expectation leading marketing is that if we're going to put a dollar into incremental brand fund investment that we'd like $3, $4, $5 back on the top line, that's where we drive additional profitability. And in this world where we've got many digital opportunities to invest that amount of money, today it's about 3%, that we have a chance to get the kind of returns that we're really pleased with. There will be natural plateaus in the media or in the approach that you use or in the creative that you use and when you hit a plateau, then there's another investment that can maybe get you to another level. And so, I do expect that over the years we'll continue to invest in more of an industry standard of around 4%. Some brands are spending upwards of 5%, but we're not in any rush to try to catch up to that if we can't prove that we can get the returns. Franchisees have been very happy with our marketing investments, because they're seeing that same top line growth that we've been seeing. Particularly when you look at the underlying indicators like we're talking about with Perks and digital and the digital mix and our ability to drive traffic. These are all things we think are rooted in the operations and how we're marketing that. So, I think we're in a good place right now for now.

The next question comes from Matt Curtis with William Blair.

I just wanted to get back to the pricing discussion for a moment. And I ask how you view the value proposition right now following your most recent price increase? And if there's been any signs of consumer resistance so far. And then relatedly, I noticed on this last increase, you seem to have left pricing on big unchanged, correct me if I'm wrong. So I was wondering what your thought process was around that?

Sure. Let me just take the sort of consumer dynamic for one second. If you remember, when we talked about our pricing strategy for the year, we knew that based on the way we could see inflation evolving, we would be modest in our price. And we have, our 1st action was 1.5, we had a 1.1 and the recent one was in a similar zone as those others. And that was deliberate. We got, in where we needed to be as vis-à-vis inflation, which has come back to us. So, that's been helpful. What we've seen as a benefit, I alluded to it in answer to the earlier question is, it looks like some other of our competitors have continued to take some price, and that may have benefited us in terms of relative value that we're providing to our customer base. As well, you know, our menu is fairly broad. So, even though we might see some movement around from whether that's away from DSPs or whether that's from big sandwiches to others. We feel like we still create that kind of what you get for what you pay equation is working in our favor. And the best we can tell, Matt, from the data we see, relative to fast casual, our traffic continues to put us in a position where we're taking share. We're taking traffic share and we're doing it consistently week over week over week and have throughout the quarter. So, as Bob said, I think we're in a good spot as it relates to our demographic, In terms of their employment level, their savings that they still have left and they still like to come to Potbelly. So, I think we feel pretty good about where we're headed here into the fourth quarter. And then, the second part of your question was related to kind of where we're taking pricing, where we're not taking price. We tend not to take pricing consistent places across the menu because we want to make sure that we're within both psychological barriers, right, nines and zeros and those kinds of things, we want to make sure as well we want to balance across channels. So, sometimes we'll take a digital only price, sometimes we'll take a size only price, or sometimes we'll take a category only price. It really varies. And this last price increase, we may have hit bigs a little bit less than we did others, as we try to maintain that value across the menu for our consumers.

And then for the increased grant fund contribution, which hit the other operating expenses line. Could you run us through what that spend has been specifically earmarked for?

Yes. Brand fund is, I mean, it's marketing. So, it's our media is 100% digital. It's delivered back to the shops in an equitable fashion, that's one of the reasons franchisees really appreciate how we manage the brand fund, because they know that they get their contributions redeployed into their markets. But it's across the media channels. We've got, paid social. We've got digital. We've got, I should say, our web and our advertising that's promotional activity and then promotional activations that we do for every one of our new products that get rolled out. We've got search engine optimization and the like, catering, advertising and so on. So, it's across the spectrum what you would see in normal digital advertising for us. We have started to experiment with some media expansion in there too, because again, we know that we're even for what we're investing and what we're getting back, we know that there's more that we can continue to pour in. So, we've got to do some experimentation along the way too.

The next question is a follow-up from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.

Just want to make sure on for Q4, you've got a 14th week here. And just wanted to understand, I believe that that is kind of the holiday week post-Christmas. And to understand what the typical sales volumes look like in that week and how we should be thinking about the impact of that week on some of these line items, like occupancy and labor?

I think there's probably a few things going on. Number one, that week, for us anyway, includes Christmas and it includes New Year's Eve. So it is going to be the way we would play it out, a lower volume week. So, you can imagine how that starts to flow through the rest of the P&L. So we don't, it ends up being about it. If we have a seven-day week, normally it ends up being about a 5.5-day week. I think as we try to think about the adjustment in our P&L. Margins and so forth, I think you know, roughly be around the same. It's not going to really impact those kinds of things, mostly volume.

Got it. Thanks for taking the extra one.

Yes, Jeremy, just a couple of specifics. One of the things that I think, Steve and his team do really well as we, when we look at something like this, we don't get a free week of occupancy. We would've accrued or accounted for that with that 53rd week and spread that accordingly. And same thing with any of the other fixed costs. So, it puts a little sales pressure on there. But other than that, it's just happens to us every five or six years, right.

Thank you. Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn the call back over to Bob Wright for closing remarks.

Thank you, operator, and thank you all again for your time this evening and for joining us. We appreciate the questions, the engagement and certainly look forward to talking again soon. Hope you all have a great night.