Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Papa John's International Inc (PZZA, Financial) has made significant progress in enhancing its leadership team with the addition of experienced executives, including a new Chief Digital and Technology Officer and Chief Marketing Officer.
- The company is focusing on modernizing its tech stack to improve the digital customer experience and customer relationship management, which is expected to drive sales and operational efficiency.
- Papa John's is actively working on optimizing its core menu and introducing new menu items that resonate with customers and improve margins.
- The company is investing in its loyalty program, Papa Rewards, to enhance customer engagement and drive repeat purchases.
- Papa John's is committed to expanding its domestic footprint, with plans to open more than 100 new restaurants in North America in 2024, supported by reduced build costs and strategic market development.
Negative Points
- Papa John's International Inc (PZZA) reported a decline in global system-wide restaurant sales by approximately 3% in constant currency for the third quarter, with North America comparable sales down approximately 6%.
- The company is facing challenges with lower transactions, particularly in its organic delivery and carry-out business, impacting overall sales performance.
- Higher food basket costs, especially for cheese and chicken, have contributed to a decline in domestic company-owned restaurant segment margins.
- Papa John's is experiencing a challenging sales environment internationally, with comparable sales down 3% in the third quarter, influenced by dynamic conditions in key markets like the Middle East.
- The company anticipates continued pressure on margins due to commodity headwinds and strategic reinvestments, which may impact profitability in the near term.
Q & A Highlights
Q: Can you discuss the learnings from the margin decline and testing in the third quarter, and how they will be applied going forward? How should we think about margins in the fourth quarter and into 2025?
A: Todd Penegor, CEO, explained that they conducted various tests, including pricing and loyalty program adjustments, to understand customer behavior and drive transactions. These learnings are helping to improve transaction trends. Ravi Thanawala, CFO, added that food costs are expected to rise mid-single digits in Q4, and they are focusing on transaction gains before implementing margin initiatives. The goal is to improve value perception and sales gradually.
Q: What do you believe is the biggest driver of underperformance in same-store sales compared to your largest peers? How do you plan to protect franchise profitability as you lean into value?
A: Todd Penegor, CEO, identified value perception as a significant challenge. They are focusing on amplifying their quality message and simplifying operations to improve pizza quality. The strategy includes leveraging data for targeted deals and enhancing the loyalty program to drive frequency and engagement. Ravi Thanawala, CFO, noted that incremental transactions have a strong impact on profitability, and they are confident in driving long-term restaurant profitability.
Q: With many focus areas, where do you see the greatest opportunity to move the needle in the short term versus the medium to long term?
A: Todd Penegor, CEO, emphasized the importance of modernizing the tech stack, particularly the loyalty program, to drive transactions. Short-term efforts include reducing friction in digital ordering and balancing promotional calendars. Long-term goals focus on improving pizza quality and innovation, as well as effectively communicating their unique value proposition.
Q: Can you clarify the company's plans for additional advertising contributions and the level of investment?
A: Todd Penegor, CEO, stated that they have supplemented investments in digital and traditional marketing by about $3.5 million to drive momentum. They are considering co-investing with franchisees in the future to balance national and local advertising. Additionally, they have increased the tech fee to support technology investments.
Q: How do you view the domestic system's ownership structure, and is refranchising with development agreements a possibility?
A: Todd Penegor, CEO, mentioned that they are evaluating the appropriate mix of company-owned versus franchise-owned restaurants. Refranchising is considered to stimulate growth, with a focus on partnering with growth-minded franchisees. They aim to maintain some company ownership to ensure operational excellence and brand stewardship.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
