Papa Murphy's shares rise modestly on public debut

Papa Murphy’s Holdings Inc. made its debut on the Nasdaq on Friday with shares rising modestly on the first day of trading.

The parent of the Papa Murphy’s Take ‘n’ Bake Pizza chain priced its initial public offering late Thursday at $11 per share, the low end of its expected range of $11 to $13 per share. The initial offering of 5.83 million shares raised about $64.1 million.

Under the symbol FRSH, the stock opened at $12.10 per share and later eased off to $11.05 by market close. Ken Calwell, president and chief executive of Vancouver, Wash.-based Papa Murphy’s, rang the bell that marked the opening of trading on Friday.

With the IPO, New York-based private equity firm Lee Equity Partners LLC will retain a roughly 40-percent stake in Papa Murphy’s. Affiliates of Lee Equity Partners acquired a majority stake in what was Papa Murphy’s International in May 2010 from Charlesbank Capital Partners.

In an interview with Nation’s Restaurant News, Calwell said taking the company public would not only help eliminate debt, but also raise broader awareness for a brand that has not yet advertised on national TV.

Papa Murphy’s did not have the first-day pop of Zoe’s Kitchen Inc., which saw its stock rise about 65 percent during its New York Stock Exchange debut on April 11.

The first restaurant IPO of the year, Zoe’s was priced initially at $15 per share and ended the first day at $24.72 per share. Since then, Zoe’s stock price has ranged between $23.73 and $31.43.

With 1,425 locations in 38 states, Canada and the United Arab Emirates, Papa Murphy’s has carved out a unique niche within the $45 billion pizza category.

Unlike the Big Three competitors — Domino’s, Papa John’s and Pizza Hut — Papa Murphy’s units have no ovens and no need for delivery drivers. The chain offers freshly prepared, fully customized pies that customers take home to bake.

Papa Murphy’s has recorded same-store sales growth in 36 of the last 40 quarters, including a 3.3-percent increase for the first quarter this year. It ended fiscal 2013 with $785.6 million in systemwide sales, according to filings with the Securities and Exchange Commission, but recorded a net loss of $2.6 million for the year.

Calwell said key initiatives to be rolled out this year will set the brand up for new growth. A new fresh pan pizza with a thicker, buttery crust that launched in February, for example, has increased transactions and raised the guest check, he said. New “precision marketing initiatives” are in the works to better understand the brand’s consumers and what they need, he noted.

In addition, the chain is rolling out a new point of sale system that is currently in about 800 locations. “It not only helps improve order accuracy, but it also gives a better line of sight to food costs, inventory and overall labor,” Calwell said.

The POS system also sets the chain up to launch online ordering, which has been tested in about 300 locations. Calwell said all units will likely offer online ordering within two years or so, and the next step will be looking at mobile ordering and payment options.

Calwell, who spent seven years working at Domino’s, said the Big Three players have demonstrated the benefits of such technology. Other pizza competitors, including the smaller mom-and-pops and regional chains, however, have been slower to adopt online and mobile ordering, which could give Papa Murphy’s an edge.

Unit growth will also accelerate, Calwell said. The chain, which is 95-percent franchised, expects to add 105 locations in 2014, and is planning more next year.

“All the models we’ve done show there’s potential for 4,500 stores in the U.S. alone,” Calwell said. “The first phase will be to grow in our current markets.”

In an unusual move, Papa Murphy’s, with Lee Equity Partners, recently took a minority stake in the growing fast-casual pizza brand Project Pie, based in San Diego. The 10-unit Project Pie is one of a growing number of promising build-your-own-fresh-baked-pizza concepts in the style of a Chipotle Mexican Grill.

The investment was an opportunity to dip a toe into the rapid growth of the fast-casual sector, Calwell said. Papa Murphy’s’ sales have not been impacted at all in markets they share with fast-casual pizza brands.

“The Project Pie consumer is completely different from the Papa Murphy’s consumer,” he said. “Fast-casual pizza is more young couples and singles, where Papa Murphy’s is more for families.

“They are eat-in, we are eat at home. They are more urban, we are more suburban,” he added. “Long term, it could be a complementary growth strategy to help us get into more urban areas.”

Contact Lisa Jennings at [email protected].
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