Papa John's: Digital ordering growth helps lift 1Q sales

Saying pizza is a good business to be in right now, executives at Papa John’s International Inc. said Wednesday that the company plans to build on the strength and momentum of sales both domestically and around the world.

The Louisville, Ky.-based pizza chain reported a 13.7-percent increase in first-quarter profit. Same-store sales rose 1.6 percent among units in North America, despite higher food costs — primarily cheese.

John Schnatter, Papa John’s founder and chief executive, partially credited the results to the chain’s Super Bowl promotions featuring celebrity athlete Peyton Manning, who is also a Papa John’s franchisee in Denver. He also said the pizza chain’s product quality and customers service scores were at “an all-time high.”

Growth in digital and mobile ordering also contributed to the quarter’s positive results, he said, noting that it accounted for about 40 percent of all sales, with some markets topping 50 percent.

Such advances increasingly give larger chains an advantage over smaller regional chains and independents, said Tony Thompson, executive vice president, chief operating officer, and president of PJ Food Service. “Value and choice remain paramount,” said Thompson. “But the pizza category is a great value in the economy we’re in.”

Schnatter, said the economic environment “remains challenging,” and the three big pizza brands in the U.S. have all been competing on price offering pizzas around $8 — though Papa John’s is able to charge a little bit more for more-premium products. Still, he said, “We don’t operate in a vacuum. If we’re feeling pressured and take price, so do they.”

At company-operated units in North America, same-store sales rose 3.9 percent, compared with a 0.8-percent increase for franchisees, and Schnatter said the chain’s corporate locations continue to exceed those of franchisees on almost all matrices. “We’re about the only franchisor that outperforms its franchisee base,” he said, noting that the company is putting together a program to help share best practices.

The company expects to reach 1,000 international units by this summer, but Thompson said the company is just getting started with growth outside North America. “The runway is long and wide,” he said.

International progress

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The 8.2-percent increase in international same-store sales during the first quarter capped a three-year cumulative increase of 22 percent.

Though the company didn’t break down results by region, executives indicated that Papa John’s units are performing particularly well in Latin America, the United Kingdom and Russia.

Schnatter said the company’s international progress is “like night and day” from five years ago. He credited efforts to improve food quality internationally, saying the products offered in Papa John’s units overseas now mirror those offered in the U.S.

Analysts asked if Papa John’s was benefitting in China from supply chain setbacks faced by competitor Yum! Brands Inc.’s Pizza Hut brand there. In response, Schnatter said, “I wouldn’t say we’re taking from Pizza Hut.”

Pizza Hut restaurants in China tend to be bigger restaurants, he added, “more like a T.G.I. Friday’s.”

Instead, he attributed Papa John’s success in China to the brand’s model and continuing momentum, saying there is plenty of room for growth in markets like Beijing, where Papa John’s has 50 units currently and plans to reach 100 by late 2014 or early 2015.

For the year, Papa John’s upgraded its outlook, saying earnings per share would likely be between $2.90 and $3. Previously, the company had projected earnings between $2.85 to $2.95.

The company’s borrowing capacity on its line of credit was also increased to $300 million from $175 million with the maturity date extended to April 2018.

Contact Lisa Jennings at [email protected]
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