Papa John's Smart Execution Makes It a Smart Bet

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Jan 28, 2015

Papa John (PZZA, Financial) delivered excellent third quarter results enabled by its operators and franchisees constantly and successfully executing upon the basics and delivering on its better ingredients better pizza brand promise each day.

Papa John’s North American comp sales increased 7% during the third quarter and depict that its consumers continuously prefer enhanced quality of Papa John’s pizza.

Attracting more customers

The pizza maker continues to attract greater customers and sustain the current customer base through its innovative pizza offerings and exceedingly good service.

Papa John’s pizza quality, marketing, distribution, service levels and digital capabilities are continuously improving. And for maintaining this success its focus remains on continuously getting a little better each day and in surpassing its earlier best and by supporting its corporate operators and franchisees in delivering the supreme pizza experience in the entire industry.

Papa John continues to grab market share through its quality and digital leadership position established in the gross store. Currently, it achieves nearly 50% of its domestic digital sales through this channel.

The relentless focus on delivering innovation and better quality pizza to customers is allowing the company to expand the market share and attach greater revenue streams to its balance sheet.

The added units and excellent comps for the quarter allowed Papa John to expand its international profits, despite write down of eight of its north China restaurants. Papa John is evaluating its growth prospects in China and implementing the necessary changes required to achieve long-term growth in the key market.

Focusing on the right areas

Papa John has developed a strong culture of pride and passion for quality to drive long-term growth and profitability. It is continuously focused on offering superior ingredients, nurturing talented workforce, enhanced technology, improved branding and superior customer experiences.

The increased international profits were partially offset by the decline in the key China markets due to the failure of the general growth strategy implemented in China as applied in the other growth markets.

Going forward, Papa John targets on avoiding the highs and lows and generate continuous and stable growth with time. The planned efforts executed by the company in 2014 are expected to have delivered excellent results and prove as a catalyst for enhanced full year domestic sales guidance in 5% to 7% range.

Papa John is developing loyalty through its Papa Rewards loyalty program. There’s rising customer traction for the program attracted by the ease of the program and subsequently being offered with free pizzas. Similar to the Papa Rewards program, Papa John targets on investing aggressively into digital innovation for enhancing the general customer experience.

The continued efforts of Papa John to expand sales by offering supreme innovation capabilities and controlling costs are estimated to position the company for unhindered future growth.

At present, Papa John is continually rolling out its new point of sales system called FOCUS which is estimated to improve the store-level operations and enhance the customer experience. The rollout is forecasted to get completed by the concluding first quarter of 2015. In the quarter, Papa John opened 59 total worldwide units with nearly equal units locally and globally.

Papa John’s comp sales in the international business rose by 5.5% during the quarter with solid performance in Latin America, Middle East, GCC, Russia and the UK.

The global acceptance of Papa John’s pizza offerings are forecasted to drive the company on the path to profitability and thus growing the shareholder value.

Currently, Papa John has 3,200 stores in Canada and the United States, but its VP Joe Smith still expects to further add 600 to 700 locations in the states.

Conclusion

The trailing P/E and forward P/E ratios of 38.32 and 30.00 respectively depict the continued successful cost-cutting efforts of the company with a reasonable valuation. However, the PEG ratio of 2.43 suggests slower and costlier company growth. Still, the investors are advised to invest into Papa John with an impressive profit margin of 4.55% and expect promising long-term returns.