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Potbelly may close 100 shops, Noodles delays quarterly report
As some restaurants around the United States are reopening, COVID-19 is still wreaking havoc on many including Potbelly, based in Chicago, and Broomfield-Colorado Noodles and Co.
May 13, 2020 by Cherryh Cansler — Editor, FastCasual.com
As some restaurants around the United States are reopening, COVID-19 is wreaking havoc on many brands including Potbelly Corporation, based in Chicago, and Broomfield-Colorado Noodles and Co.
Potbelly President and CEO Alan Johnson said Tuesday that the chain may have to close up to 100 stores, reporting that total revenues were down to $87.6 million from $98.1 million during Q1, ending March 29.
"Simply put, the pandemic arrested the strong turnaround momentum we initiated in Q4 last year," he said in a company press release. "The strategy that included investments in digital capabilities, operational improvements, and food quality-centered communications was clearly taking hold with our customers. We posted January comparable same-store sales of +2.5%, accelerating to +4.1% in February. “We were on pace to record our first positive quarterly comp since the fourth quarter of 2016.”
The pandemic has forced the company to focus on the health and safety of employees and customers as well as protecting the balance sheet. In March, for example, the chain saw comparable same-store sales drop to -68%, and it shut down dine-in options in accordance with state mandates. It also temporarily closed 36 company-operated shops, furloughed one-third of its corporate employees and cut salaries for all executives and corporate employees by 25%.
"Our business now is primarily off-premise," Johnson said. "The strategic investments we made last year to improve our digital capabilities are proving critical in this environment and positioning us well during the recovery. They are the major reason our sales comps improved to -45% by the first week of May. Accessibility is key to remaining competitive, and customers can have their food brought to their door, pick up their food at our shops, or have one of our associates bring their order to their car with our new curbside pick-up. DoorDash, Grubhub, and now, UberEats, are valuable delivery partners.”
Johnson expects these challenges to persist over the next several months and is planning accordingly.
"We are operating with a cash-preservation mindset," he said."In March, we drew down our $40 million of available capacity under our revolving credit facility and enacted significant capital and expense reductions," he said. "Currently, we are having proactive conversations with our landlords, are considering closing up to 100 shops, and are continuously working to implement ways to work more effectively and efficiently. We have a firm grasp on what we can control within our business."
In the meantime, the chain is relying on digital orders, has launched Potbelly Pantry, family meals and curbside pick-up.
"We are seeing encouraging signs of recovery in our business as we move through the second quarter. We are shaping our post-pandemic future by the actions we are taking now, and we will not allow this virus to determine our success," he said.
In April, Potbelly secured $10 million from the Payroll Protection Program but returned it, saying in a statement that although it was forced to furlough employees, close shops and cut salaries, it was seeking other avenues after learning that funding had run out before many small businesses had a chance to apply.
"We were surprised and disappointed when the fund was quickly exhausted, leaving many without help," the statement said. "We are returning the PPP loan after further clarification from the Treasury Department. We will continue to seek alternatives to help support our employees and enable them to return to work so they can serve our loyal customers."
Noodles and Co. said this week that it was delaying its in-depth quarterly report. Leadership is too focused on managing the impact of the coronavirus to produce it on time, according to BizWest.
The chain was supposed to file the report Monday but told the U.S. Securities and Exchange Commission that it was taking advantage of an SEC order granting companies affected by COVID-19 an additional 45 days to file full reports. It said the financial strain required the attention of staff that would normally be preparing the report required by public companies to issue after financials have been released.
Last week, however, Noodles said via a company press release that it lost nearly 9% of sales year-over-year in the first quarter, ending March 31, as many locations were shut down or forced to serve to-go only in order to comply with U.S. stay-at-home orders.
It now expects to file the report by June 24 at the latest.
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