Potbelly Corp. (PBPB) CEO Alan Johnson on Q2 2018 Results - Earnings Call Transcript

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About: Potbelly Corporation (PBPB)
by: SA Transcripts

Potbelly Corp. (NASDAQ:PBPB) Q2 2018 Results Conference Call August 7, 2018 5:00 PM ET

Executives

Matthew Revord - Chief Legal Officer

Alan Johnson - CEO

Mike Coyne - CFO

Analysts

Joshua Long - Piper Jaffray

Karen Holthouse - Goldman Sachs

Mary McNellis - Robert W. Baird

Gregory Francfort - Bank of America

Stephen Anderson - Maxim Group

Operator

Good afternoon everyone and welcome to Potbelly Corporation Second Quarter Fiscal 2018 Earnings Conference Call. The call will begin with prepared comments by management followed by question-and-answer-session. Today’s call is being recorded. I would now like to turn the call over to Mr. Matthew Revord, Potbelly’s Chief Legal Officer. Please go ahead.

Matthew Revord

Good afternoon everyone and welcome to our second quarter 2018 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 or the future financial performance of the Company. Any such statements, including our outlook for 2018 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 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 our actual results to differ materially from the forward-looking statements and other information we'll be giving 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 Mike Coyne, our Chief Financial Officer. Alan will begin with his perspective on the second quarter performance and provide a discussion of our ongoing strategic initiatives. Mike will then review our financial results and future outlook in more detail, before we open the call up for your questions.

I'll now turn the call over to Alan.

Alan Johnson

Thanks, Matt. Good afternoon everyone and thank you for joining the call. We are pleased with our performance in the second quarter where we delivered revenue of a 110 million and adjusted earnings per share of $0.13. More importantly, we’re delighted with the improvement in our same store sales trend, which was nearly flat at a negative 0.2% in the second quarter, as compared to negative 3.6% in the first quarter, and it was our best quarterly result since the fourth quarter of 2016.

Our second quarter comp trends were driven by stronger traffic and higher check, which confirms to me that we have the right strategies in place and we are effectively executing our traffic building initiatives. Our performance through the first half of the year provides us with confidence to reiterate our guidance for the year. I would note that it is still very early in our turnaround efforts and I want to reiterate the 2018 is expected to be a transition year for Potbelly.

That said, we’re very encouraged by early progress and I want to take the opportunity to think our 7,000 plus Potbelly associates for without their commitments to change and dedication to daily execution, this turnaround would not be possible. Mark will review our financial results and outlook for 2018 in greater detail later in the call. But first, I would like to highlight the significant progress we have made to symbol the right team to fit to our turnaround strategy. And then I'll provide an update on our strategic initiatives.

We are focused on assembling a leadership team with the skill set and experience required to successfully execute our turnaround plan, having the right team in place is critical to our success. Over the past few months, we have made great strides in strengthening our leadership team with the additional talented executives to lead our marketing, real estate, franchising, HR and off-premise business.

First, I would like to introduce Brandon Rhoten, who joined Potbelly in June from Papa John's in previously from Wendy's. I was specifically looking for someone who grew up in the social, digital and mobile space. Someone with impactful experience and a good sense of what works, and Brandon certainly fits mold. Brandon and his team received industry-wide recognition for the highly successful digital media campaigns, which help to lead the brand turnaround at Wendy’s. He's a great storyteller and he's a great addition to our quirky brand.

Debbie White has joined Potbelly to lead our off-premise business. She brings 25 plus years of sales, marketing and leadership roles across PepsiCo, Taco Bell and Domino's, and will be instrumentally helping Potbelly capture the significant growth potential across all day parts in catering, delivery, grab and go, and curbside pickup. Finally, our Chief Legal Officer Matt Revord has also been appointed our Chief People Officer. Matt has historically been very closely involved with our HR team. So, the transition in May taking over HR responsibilities has been very smooth. This is an example of one of the ways we've been able to repurpose G&A by consolidating certain responsibilities where appropriate.

As we had mentioned last quarter, we've brought in Jeff Welch to head up our franchise Development and Strategy. Since then we have also realigned our company development and strategy under Jeff to take full advantages of the synergies of our growth effort. Another way, we've been able to repurpose G&A by consolidating responsibilities where appropriate. Finally, we previously announced that we’ve hired Chef Ryan LaRoche to head up our Culinary Innovation.

As we continue to look for opportunities to bolster our team, it is important to recognize the rest of our leadership team, Julie Younglove-Webb, who is responsible for Operations; Maryann Byrdak whose looks off to IT; Mike Coyne our CFO; and Matt Revord our Chief Legal Officer and CPO, all very seasoned executives with long tenure at Potbelly spending 3 to 10 years each. I believe we have made great progress in building the right team with complementary skills to execute our turnaround strategy.

Now, I would like to spend a few minutes to provide an update on our strategic initiatives. Our main priorities this year is to establish the foundation to position Potbelly put us stain traffic and same-store sales growth overtime. During the last earnings call, I outlined several key strategic initiatives that we’re laser focused on executing to substantially improve our operating performance. Let me briefly update you on these.

First, we must become a more sales-focused organization. As I mentioned last quarter, we are intensely focused on suggestive selling. The power of converting the average customer to add one more item, spend one more dollar and to visit one more time, all translates directly into positive comp. When I first joined Potbelly, we suggestively sold 6% of the time and we now consistently achieved over 40%.

While I'm pleased to see the team so quickly embrace this concept of OneMore, it is imperative that we optimize our efforts to capture the remaining missed opportunities. I am encouraged by our progress but there’s much work still to be done. During the second quarter, we tested over a 100 different segmented offers across every one of our stores through a disciplined process to learn what really works and what doesn't. We believe in failing costs, if a certain promotion isn't working this week, we will change it and try something different next week.

Eventually, we would run out of things that don't work. So, we need to adapt and pivot quickly to find the winning combination and with our dynamic and balanced approach, we are not betting the farm with any single promotion. This rapid test, learn and roll approach has given us valuable earnings on how we begin to utilize marketing as an engine of growth. We continue to test across our markets and the data we capture will be invaluable as we become more targeted in our offers going forward.

Second, we aim to drive incremental sales through menu engineering and product innovation. During the second quarter, we introduced the Cuban as our featured premium sandwich. We saw solid attachment rates with this delicious sandwich, which exceeded our expectations and contributed to our positive mix for the quarter. Last week, we introduced two unique ways to enjoy Potbelly’s Barbecue Pulled Pork sandwich. Both sandwiches start with our premium slow roasted, tender pulled pork and Potbelly’s signature sweet and smoky barbecue sauce. The Classic Barbecue Pulled Pork sandwich comes with coleslaw while the spicy Barbecue Pulled Pork sandwich comes with a unique twist of cheddar cheese and jalapeno crisps, definitely worth indulging your taste buds with a little heat.

While just launched, we are very encouraged by the early customer feedback on this LTO. We believe product innovation and menu engineering will continue to be an important driver of incremental sales. The strong performance of our recent LTOs which include the Turkey Club followed by the Gyro, the Cuban and now Barbecue Pulled Pork sandwiches provides the opportunity to innovate and further validate that our customers will pay for premium sandwiches, if we deliver a compelling product. We are excited by our pipeline of menu innovation and I can't wait to show you what Chef Ryan is whipping up in his kitchen.

Third, we’ll increase investment and focus in marketing and technology. It is imperative that we connect our customers with the span and quirky brand through improved storytelling and more targeted customer engagement. We are very focused on providing compelling content that captures the quirky voice of the brand in a way that differentiates it and makes Potbelly a part of the social conversation. As we like to say, we believe that all food should be entertaining. In that it is likely going to taste even better, if it makes you smile first.

Let me walk through a few recent examples. First, we celebrated National Turkey Month with all Turkey Tender the promotion where we encouraged our customers to swipe right for $1 of any Turkey sandwich, which was a fun play of the very popular Tinder dating app. Second, we got in front of a heat wave with a Free Shake Friday offer that encouraged our customers to beat the heat with the free shaker smoothie with an on-trade purchase. This timely and very relevant promo drove a record number of shakes and smoothie served and also drove significant traffic.

Finally, in recognition of Friday the 13th, we offered a free ice cream sandwich for Perk members with purchase wire or app. This offer was a huge success as we saw a tremendous uplift with over 10,000 ice cream sandwiches served that week as compared to only several hundred in a typical week. Our ability to track purchases wire or app as well as through third-party analysis of credit cost spending trends confirms that we are able to drive both trial from new customers and frequency from existing customers.

We positively impact traffic when we reached the right audience with the right message at the right time with interesting creative. We view our Potbelly Perk customer engagement and loyalty program as a key platform to harness the power of our customers. And we are intensely focused on growing our Perk membership to learn more about our customers, which will then enable us to be able to more effectively talk to them. We continue to see strong customer feedback for an adoption of Perks and we expect to welcome a 1 million Perk registrant during the third quarter.

Fourth, we will continue to invest in growing our off-premise business to leverage the catering and delivery potential of the brand. With a credible product that travels well and is perfect to most occasions, we are vastly underpenetrated in our off-premise business and we see opportunities for growth across catering, delivery, grab and go and curbside pickup. During the second quarter, we saw low double-digit growth in our off-premise business. We see this is a win-win as our customers benefit from the added convenience and we benefit from a margin perspective.

In addition, we recently introduced all day delivery at select Potbelly shops where we are utilizing a third-party delivery company to augment a delivery during non-peak period. We are encouraged by the early results and the positive traction in traffic and backline spent, but there is much room for improvement.

Fifth, we plan to invest strategically in new shop growth by decelerating company owned shop growth and increasing the mix of franchise growth. Jeff Welch has hit the ground running in the short time that he has been with Potbelly and he is working to develop a positive profitable growth. We expect to provide a more comprehensive update on our development strategies in the coming quarters.

Finally, we continue to look for opportunities to drive savings in our cost structure and productivity in our shops. As I mentioned earlier, we have consolidated several senior responsibilities as we strive to increase productivity with a flatter organization. In addition, we have implemented a number of purchasing and supply chain initiatives, which we expect to drive cost savings,

Finally, we remain focused on refining old date model and using technology to engineer our costs. As an example, we have taken some of the administrative work that our GMs had formally done in the shop and now they can do it online.

I will now turn it over to Mike who will go through the details of the P&L for the second quarter as well as outline our expectations for the remainder of 2018. Mike.

Mike Coyne

Thanks, Alan, and good afternoon everyone. As Alan mentioned, I will review the P&L and give you some of the highlights associated with our second quarter results. I will also provide a summary of our outlook for the remainder of 2018.

Starting with the top line, total revenue increased 2% to 110 million in the second quarter, we opened five new shops including three-company operated two franchised. During the second quarter, our company operated same-store sales were nearly flat and negative 0.2%. Breaking down same-store sales, our average check will approximately 3.3%, driven by a combination of price and mix.

Our shop level margin for the second quarter was 18.8% of company-operated sales as compared to 19.2% in the prior year period. Cost of goods sold was 26.2% in the second quarter and improvement of 50 basis points versus the prior year period. Labor was 29.6%, which was an increase of about 20 basis points from the prior year, primarily driven by wage inflation and partially offset by price increases and improved productivity.

Occupancy expense was 13.7% in the second quarter, an increase of 40 basis points over the prior year to due to sales deleverage and inflation in certain occupancy related costs, including lease renewals, real estate taxes and common area maintenance. Operating expenses were 11.7% in the second quarter, an increase of 30 basis points compared to the prior year's due largest sales deleverage and operating expense items such as repairs, maintenance, utilities and other expenses not directly variable with sales.

Our general and administrative expenses were approximately $13.4 million in the second quarter were 12.2% of total revenue. I would note that our G&A expenses in the second quarter contain several discrete items including $1.3 million from restructuring costs 457,000 to store closure cost, during the 53,000 CEO transition costs. Excluding discrete items, our G&A expense would have been $11.2 million or 10.2% of total revenue.

Our adjusted EBITDA was 11.5 million in the quarter, which is a decrease of 2.6% from the prior year period. During the second quarter, we had income tax expense of $303,000. Our adjusted net income for the second quarter was $3.3 million or $0.13 per diluted share, compared to adjusted net income of $2.7 million or $0.11 per diluted share in the prior year period.

Regarding our share repurchase program, in the second quarter, we repurchased approximately 259,000 shares of company Potbelly common stock in the open market for a total of approximately $3.4 million. At the end of the second quarter, we had $61.5 million available from our board authorized program for repurchases, which will continue as we move forward.

Our capital expenditures came in at approximately $6.7 million. Our balance sheet remains very strong with the cash balance at the end of the second quarter of 34.3 million and we have zero debt.

Turning now to our outlook for the full year 2018, we reiterate our guidance for flat company-operated same-store sales growth. We continue to anticipate costs of goods sold in the range of 26% to 26.5% for 2018 and labor as a percent of sales to trend around 30%. For the year, we continue to expect G&A expense to be in the range of 46.5 million to 47.5 million.

Our G&A outlook does not include costs related to the restructuring, costs related to proxy expenses or store closure costs which may occur as we remain focused on opportunistically optimizing our existing company owned portfolio.

We expect adjusted net income per diluted share in the range of $0.37 to $0.39. We expect an effective tax rate in the range of 24% to 26% for 2018. Excluding the impact of accounting standards update 2016-09 which could have had which could have a material impact on our effective tax rate.

We expect to open 10 to 12 new company operated shops in 2018 and 12 to 14 new franchise shops which will be back end weighted. Finally, we expect to spend between 23 million and 25 million in CapEx in 2018.

So with that, I'll turn it back over to Alan for summary remarks. Alan?

Alan Johnson

Thanks Mike. In closing, I believe we are making the right strategic investments both in terms of people and process and executing on the right strategies to position Potbelly for sustainable, profitable growth over the long-term. I am very encouraged by the early progress of all brand and traffic building initiatives which are reflected in the positive tree of our results to-date. However, 2019 is a transition year for Potbelly and there’s much work that’s still to be done.

We must be patient, continue to test and learn and maintain our focus and discipline to affect this turnaround. I am energized by our progress thus far and I truly believe that Potbelly’s best days are ahead. Thank you all of your time today. We appreciate you being on the call and the support of our business. I look forward to providing you with an update on our progress on our next earnings call.

I will now turn it over to the operator and open it up for questions.

Question-and-Answer Session

Operator

At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Joshua Long of Piper Jaffray. Please proceed with your question.

Joshua Long

Exciting to see a lot of the initiatives gaining traction here and so curious with all of the new ads on the human capital side and just a lot moving around, just how you think about prioritizing and balancing all of this? Is there -- with so much opportunity in front of you, is there -- do you worry about doing too much at one time? Or is it really a function of just getting the right people in place then allowing them to execute on the brand knowing that it's got a lot of strength and a lot of room to go going forward?

Alan Johnson

Getting the right team in place I think makes executing the fixed strategies that I have laid out actually very possible. And the one thing that we did very-very early on is to identify those fixed strategies, which is getting the right team in place, driving same-store sales comps, telling the Potbelly story in a way that differentiates the brand, figuring out all cost to profitable shop growth, getting the box vast in terms of size and investment and then driving hard on productivity.

That’s what we have been focused on. We are not expanding that at this stage. I think good things come from being very disciplined and very focused. So now that I have filled in the various different blanks in terms of the folks that I went through in my prepared remarks, I feel very good about our ability to stay focused and execute flawlessly.

Joshua Long

And then thinking about the product innovation menu engineering that you talked about in the call that means the Potbelly users as well as. It seems like that's a huge opportunity there with a lot of maybe not low hanging fruit but just a lot of opportunity in terms of new products or just communicating those products in your story more effectively. How do you think about the right number of promotions? And LTOs coming out of, is it really -- is it a number opportunity? Or is it just maybe a communication? There is a little bit of both. How do you think about what we might think the future of how you're going and communicating and getting your -- incentivizing your guest to come into the shops?

Alan Johnson

Yes, on the menu innovation and optimization initiative, I’m very excited about this because we kicked it off actually quite a while ago. And the initial sort of results are beginning to percolate through, but it's important for us to remember that this is a holistic look at the menu of which promotions in LTOs are just sort of one element. And if I remind you is number one goal is to maximize traffic and profitability. And the scope of the project sort of involves stuff that we have not done for quite literally 40 years. So they used-by date is when I'm truly here.

Number one priority is actually simplification and make it more shopable. Having 116 products at 66 plus points is obviously something that’s too complicated. We are looking at the design and the layout making sure that it's not an easy to read, but it's not intimidating which at the moment we believe that is, making sure that this place for us to feature innovative product like the LTOs that you mentioned in various different promos as they rolled in and rolled out.

And an interesting fact is, if you look at the customer that shops at Potbelly, when they don’t shop at Potbelly for lunch, they generally -- about 60% of them use a combination of combos or bundles except when they shop at Potbelly we don’t have any. So, the new menu design will accommodate that because I honestly do believe that is not on your traffic driver, but it is also a ticket driver and it's very nicely into one more strategy where they can buy more item will spin one more dollar is very, very important.

And then the other major element of this is looking at the assortment where I’m looking for incremental reach. And probably the best example that we are already committed to and Chef Ryan is almost as I speak working on this is, we don’t have a prime rib or a steak sandwich. And that's a very big missed opportunity for our menu. And then making sure that we look back over our shoulder a little bit and see what have we done in the past and how do we learn from that to not make same decisions at the wrong time.

So a very good example is, this is a different amount of evidence to suggest that they are all better times of the year to take price increases. And so, we are adjusting and taking that into account. So, anyway, it’s a series of or not blend of often funds. And in the meantime, we will continue to test, learn and roll, and learn by doing. And the first major test of this initiative rolls next month in September where we’re rolling this out to be about 60 shops to get a sense of what impact it has.

Joshua Long

Very exciting, we'll defiantly keep an eye on that. One last one for me, you mentioned on the off-premise channel opportunity, it's really a -- there is a margin perspective or margin opportunity there. I was curious if you could elaborate on that in terms of if that's just you're seeing higher checks and there's more of an opportunity there from a higher dollar profit or how to think about the margin opportunity for off-premise?

Alan Johnson

I think you summed it up well. It’s a higher bridge in order so that’s too the margins for sure and also for end it for the labor. I can sell $200 at a time versus $20 the economics of that on the shop of that quite different.

Operator

Our next question comes from Karen Holthouse with Goldman Sachs. Please proceed with your question.

Karen Holthouse

For another set that [Indiscernible] there about site closures in the quarter and guidance didn’t change. Could you just give us some color on sort of that part of closure? Are those stores that weren't really making money, so there is no impact to guidance and how we should be thinking about that?

Mike Coyne

So, Karen, this is Mike. I caught most of that. So, you're right on the closures and but I didn’t what your specific question was regarding the closures.

Karen Holthouse

So guidance didn’t change across the closure, so it’s the right way to think about it, but those were really making much money to begin with or also just to help us model, maybe a trailing 12 months sales associated with the stores they were closed.

Alan Johnson

Yes, so I think that's right. I think the net of the closures, some of which we are closing as part of our concerted effort to close shop that are less profitable, there also shops in there that maybe met their natural end of a 10-year life. They just weren’t -- this wasn’t economically viable for us to renew the lease.

So I would say that you're right from a bottom-line perspective that it wasn't a significant impact there yet. Clearly, part of the reason why the top line in the actual is little bit short of what some expected is because we close more shops and would've been model because we don’t guide on these closures that will probably take some refined modeling as you think about the rest of the year.

Operator

Our next question comes from Mary McNellis of Robert W. Baird. Please proceed with your question.

Mary McNellis

Could you elaborate on the comments in the press release nothing the positive trajectory of the comps? And I guess is there meant a single anything about the recent comp trend that you're seeing in early Q3? If you could clarify how we should be thinking about that comment?

Mike Coyne

Yes, I think I'll start This is, I will start in and Alan can jump in, that was really point out it was in the same kind of sentences about the improvements about this quarter sequentially over the first quarter, which was rather significant from the minus 3.6 in 1Q to the minus 0.2 we’re getting close to flat. So it really was meant to comment on that.

Mary McNellis

And then I guess, can you elaborate for that? What gives you the confidence and the ability to deliver the implied up 2% comp for the back half of the year and why do that come in?

Mike Coyne

I think it is a couple of things, while I am very interested with our team going from 6% to 40% on suggestive selling. There’s still another 60% opportunity, so that one thing is something that cost more money other than commitment to execute flawlessly. The next very important one which is as Brandon gets his feelings and his ability to tell the Potbelly story in a way that differentiates the brand, if you have a look at anyone of all social platforms Instagram, you can actually see the progression of how we started to capture that voice and I am very excited about this internet culture and how we apply that to our brand.

The many optimizations projects that I just mentioned absolutely converts into maximizing both traffic and profitability. And very shortly, we will celebrate our millionth download and our ability to segment that ever increasingly important and growing database where we can segmented office to our members as they display various different characteristics. The off-premise and initiatives of both delivery and catering is very important. We are getting good traction, there’s functionality on the app that is coming on board, which allows us to dynamically suggestive cells rather than waiting for an individual in the shop to recommend an item, so a very big opportunity for us is all beverage attachment right. We have one of the lowest detection rates probably in the industry, and we’re going to change that.

And then lastly and very importantly, I spoke about our investment in technology, right. And there's functionality coming down the path very shortly that will allow us for a first time as a brand to actually send out SMS and push notifications. We know from all of our previous experience that those things work. So that's a quick summary of some of the things that are coming up that makes me optimistic.

But at the same time I’ve told the team to be patient, do the right thing for the business and just be sort of nicely balanced with our short and long-term thinking, even if takes a little bit longer to get the right result and rather get the right results then just go faster, then you have all this months of this nonsense of boom and bust, and consistency and predictability that’s what I am after.

Operator

Our next question comes from Gregory Francfort of Bank of America. Please proceed you’re your question.

Gregory Francfort

Hey, guys. I've got a few. Just -- you give traffic and the check breakdown in the quarter. I may have missed it.

Alan Johnson

No, we didn’t give it yet. I’ll break it down for you. So we did say that the check was 3-3, so the math on that will be the traffic was down 3.5 and the check rate down is -- of that 3-3 is 2 points of price and 1.3 of mix.

Gregory Francfort

And then just I think Alan, can you maybe comment on the up sell that you’re doing up sell 40% of the time versus like with a number was before. How are you measuring that? And is that number of times your register attendant is bringing it up? Or is that what you're seeing in tax rate? And then is the beverage tax rate starting to move with that up sale? Or is it size or chips? Or what you are starting to see in terms of the change in the business?

Alan Johnson

Yes, let me repeat what was in the prepared remarks. When I first joined we were suggest to selling about 6% at the time and now we consistently achieve about 40. The way we track that interesting enough is actually we have an online customer survey where the customer goes home or goes on their phone with a receipt and fills up the survey, and one of the questions they that is asked is, were you recommended bacon and various different questions like that. So, it’s the consumers' recollection of the experience that they had in the shop.

But as Mike shared with you, we have seen significant growth in our average transactions. And if you look at the component part of that, a lot of it is the add-ons the things that are natural up sell like avocado and bacon, and yes, there is good news on the beverage attachment rate is we are starting to see some traction there, although that is slow progress because -- it's pretty good progress because we managed our starter to make changes in that area and expect that to be even better attachment. As we move to combos and bundles that seem to work everywhere else and one of the test on the menu optimization test that I made reference to happen in next month will actually have bundles in that test. So, we'll see how well they translate.

Gregory Francfort

How far away through that menu optimization process are you? And I think you said you're rolling it at 60 shops, and how long you expect this process to take? I mean theoretically it's an ongoing process, but in terms of showing up in the business?

Alan Johnson

Well, we will get an instant read for the 60 shops because we will actually be taking customers through retina scanning where they'll wear a pair of goggle and look at the -- they will be able to sort of look at the various different designs because at end of the day, they shouldn’t do anything that Alan Johnson is. If the customer finds it more shoppable, if they look in one area but select an item on the main that they don’t even look at and that tells us a lot.

I’ll give you very good example just anecdotally in terms of the change. The full manifestation of this project doesn't come until we combine both the ultimate sign. So I think the complete redesign of the menu will happen in 2019. But I’ll give you one good reference point, right now if you look at the center panel of the Potbelly menu which has all the sandwiches but even on that, if you took the time to count up the number of process there. There is about 55 price points in that center panel.

And looking at one of the test you in front of me that will be rolled out and we have taken that 55 price points down to 10. Instantly that makes it so much more shopable. You get all these sandwiches for one price point. So, that’s a very good example of we will be able to see how the consumer and not only uses that menu, but then you will also see that for the first time on all fixed menu inside the shop, there will be add-ons says you can do sort of things like add chips and a fountain drink for x and chips and shake were at various different upgrade and very easily see what you get through that process.

Gregory Francfort

And I just had two other quick questions, the first is on in terms of the full year comp guide and what’s implied the back half. I think you suggest you guys will do something like 2% like backup on comp. Is that sort of what you’re trying to suggest or kind of a flat that you’re giving for the full year sort of more of a directional sort of frame of reference for the guidance for the back half?

Mike Coyne

Yes, I guess I started by saying at the beginning at the year, we gave guidance on multiple elements and I think that saying flat or flattish. Those got a little bit of range on it, but we’re still seeking with that guidance. I would say that to Mary's earlier question we talked trajectory, we really been in kind of the flattish world to be perfectly honest for a few months now. I could point you incremental improvement, as the quarter progress and including where we’re through the third quarter so far, we finished up July and really in that same range.

But it’s really given all the things that Alan has pointed out, we have many, many things going on in this back half of the year that we’re optimistic about and so didn’t want to move up that guidance at this point because we have that optimistic and we have the opportunity, and three months from now to give you guys another update, as to as Alan pointed out the things that working, don’t working where we were successful at soft, and we will update from there. So I would say its guidance like any other guidance and we’re on hold to that and we will see how the next three months play out with all of the initiatives that Alan laid out.

Operator

Our next question comes from Stephen Anderson with Maxim Group. Please proceed with your question.

Stephen Anderson

One quick question about your food cost inflation outlook. Has that changed at all for this year? And can you provide any insight where you think costs that may be headed going to early 2019?

Alan Johnson

Yes, we haven’t said too much into 19, but once again we feel terrific about where food cost sit right now where they will be for the rest of this year where over 80% locked now, Steve, on our food basket. So, we really kind of knock wood we feel really good about the cost of goods.

Stephen Anderson

And with regards to your share count, in light of the share buyback program that you announced our last quarter, can you provide insight as to where you think the average account should be for sure for modeling purposes?

Alan Johnson

We haven’t forecasted out or guided in the past on share count. I think that what I would point out because we’re a little bit higher than where we were and a little bit higher world that a lot of you over the model. I want to remind folks we really weren't active with the repurchase plan for most of the first part of this year. We put the new plan in place in and start executing and I believe is mid May. So at best, we had half a quarter's worth. So, we will be much more consistent and intend to be more active than before, but that's all I'd say at this point.

Operator

[Operator Instructions] Our next question comes from Gregory Francfort of Bank of America. Please proceed with your question.

Q - Gregory Francfort

I just have one follow-up sort of theme a topic, just a question for Alan then a question for Mike. Just Alan as you built out your team over the past few months. Are there any holes that you still see in terms of capabilities for the management team and sort of -- or maybe is there any areas you need to fill? And then Mike the other question is, it’s kind of tied in but also somewhat separate is just as unit growth for the business has slowed, do you see an opportunity to tighten down that G&A as a percent of sales? Or is what you’re sort of planning to do with the structure more of an allocation of G&A kind of within your organization and maybe where does that go and if there’s an opportunity?

Alan Johnson

So why don't I kick it off and answer your first question Gregory and regarding the senior leadership team, I am very happy with where we are and I’ve got now a nice blend of folks that have been here 3 to 10 years each. And Mike met, and Julie and Maryann, so they’ll keep me honest. They’ve good institutional memory about what we've done in the past and I really appreciated the counsel that they've given me in the guidance that they’ve given me this transition period.

The rest of team and are simulating just because we’ve hired new people doesn't mean, it doesn't required efforts to work together and challenge each other in the right way. And so far I am delighted with how everybody's contributing towards the goals that we have set for ourselves and the focus that we have so the conversations is rich. It’s certainly passionate and I think it's safe to say that, I held off even though I signaled early in my tenure that we have been investing in the marketing group.

And I held off filling position in that until such time as Brandon came in and so, he is now and he's formulating his own opinion as to what we need as we rolled out and figure out how to tell the Potbelly story. So in due course, he’ll take care of all the bet and we’ll probably not publicly make a big song and dance about this, but we haven’t a had creative director for, I mean, well over I think a year.

And we signed up someone that we’re very excited about this week. So God willing and he starts I think on the 20th of this month. So other than that, the field is relatively stable and I think those are the big changes. Now, we just got to figure out how to work together and deliver on the promise of maximizing shareholder value.

Mike Coyne

Terrific and if I can then jump in, I think that I just borrow some of Alan’s words from both this set of prepared remarks as well as the last call, which is we are going to be very vigilant around finding opportunities to say sure to become more productive and in many ways. And Alan mentioned a couple of things that specifically on this call everything from making just two jobs, which makes perfect sense to us in terms development not just the franchise side, but the owned side, to take Mr. Revord and have him do two jobs.

And that’s really just the start of what we've been doing to try to find savings on the G&A line, but we've also been very clear for Alan's entire tenure here that mostly what we’re looking to do is to reallocate that spend into what Alan just talked about right to fund out those areas that will drive -- that are most of them to driving traffic and driving sales. So I would say I wouldn’t anticipate significant improvement in that G&A line in the near term because of exactly you asked.

Operator

Ladies and gentlemen, we have reached to the end of our question-and-answer-session. I’d like to turn the call back to Alan Johnson for closing remarks.

Alan Johnson

Okay, thank you very much. I’d like to thank everybody on the call for showing the interest in our turnaround and I look forward to give you an update at the next earnings call. Take care, everybody. Thank you. Bye-bye.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.