Papa John's (PZZA, Financial) is making significant progress on the operational front. It has improved quality for its pizza while maintaining world-class services at its stores. Its distribution and marketing capabilities are getting better. Also, its recent investment to make digital innovation has been outstanding. Its digital offerings have made things simpler for customers to order their pizzas. These competencies, coupled with strategic investments, should enable the company to post better numbers and drive growth in 2015.
Digital growth will power performance
Its recent focus on digital ordering should help the company gain extra market share going forward. It has realized great success in the digital and mobile channels of late. Its digital mix now accounts for little less than 50% of its total domestic systemwide sales. Its digital networks have elevated its sales performance. Also, the rich ingredients coupled with world-class service should supplement its growth momentum going forward.
Further, the company remains on track to make investment in the digital innovations in order to make things easier for its customers. Its Papa Reward Loyalty program is already gaining enough traction for the company. Papa John’s should benefit from this digital wave that has come into play in the market across the world. Moreover, the company has enhanced its menu that should assist the company generate higher revenue in the future.
More improvements
In addition, the company is investing in the technology front. It plans to roll out a new in-store operating system FOCUS across its stores in the United States and globally. The company considers this technology investment to create positive impact on store-level operations that should enhance customer experience eventually.
It has completed installing this system to more than 50% of its store networks. It plans to complete the substantial rollout of this system to all of its stores by the end of first-quarter 2015. It had positive comps sales growth in the United States and globally in the last reported quarter. Its pains of revitalizing its brands and expansion of its units at home as well as in the international markets are driving growth for its stores. Its comps grew 7% in North America and 5% internationally in the third-quarter 2014.
Better execution, improved LTOs and extra marketing played a great role delivering this positive comp growth. Papa John’s is targeting to deliver 9% comp growth in the fourth-quarter of fiscal year 2014.
It is witnessing improved performance in the United Kingdom, Russia, GCC and throughout the Middle East and North America. The company plans to open its operation in China. It is engaged in assessing the market opportunities in the region. It plans to better align its menu and model with enhanced marketing that should help the company position its brand successfully and drive sales and profitability in the long run.
China certainly provides great opportunity to Papa John’s in the future. However, the company faces bigger competitors such as Domino’s Pizza (DPZ, Financial) on the international front that has been doing fairly well. Domino's, in the third quarter, posted net sales of $446.57 million, while PZZA had total sales of $390.4 million. Domino’s delivered 14% better sales.
Final words
Papa John’s is certainly a great investment avenue in the future. It is making strategic investments in order to boosts its sales and profitability. Simultaneously it is engaged in providing superior quality pizza with world-class services to customers across the world. The analysts expect its earnings to grow at CAGR of 15.00%, greater than average industry CAGR of 14.25% for the next five years. Also, it offers solid growth in the short run. Its earnings are expected to grow 20.60% this year and 14.70% by next year respectively.
Moreover, the stock shares cheap valuation. It is trading at the trailing P/E of 39.51 and forward P/E of 26.97. It has PEG ratio of 2.06 that continues to strengthen its growth in the long run. Its balance sheet carries total cash of $17.15 million and has total debt of 224.68 million. Papa John’s has operating cash flow of $11.35 million and levered free cash flow of $47.41 million.
