Let's talk about pizza and pressure. Papa John's International, Inc. (PZZA) had a rough day Thursday. The stock took a tumble after the company served up quarterly results that left investors a bit hungry, particularly on the sales front. The story here isn't just about missing a number; it's about what happens when your customers' wallets get tighter and you have to shout louder (and cheaper) to get their attention.
Investors zeroed in on two main issues: softer demand at home in North America and the fact that Papa John's had to lean much harder on promotions to try and drum up business. This was happening even as the company's international restaurants kept humming along nicely. It's a tale of two very different pizza-eating worlds.
The Numbers on the Box
For the fourth quarter, Papa John's posted adjusted earnings per share of 34 cents, which was right in line with what analysts were expecting. So, the profit picture was stable. The trouble was on the top line. Quarterly sales came in at $498.179 million. That's down 6% from the same period last year, and it missed the analyst consensus estimate of $515.002 million.
Looking at global systemwide restaurant sales, the total was $1.23 billion, a 1% dip from the prior year. The company pointed to a $24 million decline at domestic company-owned restaurants as the main driver. About $9 million of that drop was simply due to the refranchising of 85 locations—they're now run by franchisees, so that revenue moves off the company's books. But the rest? That's the consumer and promotion story.
The sales comparison, or "comp sales," tells the geographic split clearly. In North America, comparable sales fell 5%. Breaking that down, company-owned restaurant comps were down 6%, and franchised locations were down 5%. Meanwhile, outside the U.S. and Canada, international comparable sales grew a healthy 6%. That's the fifth straight quarter of positive growth for the international division.
"In the fourth quarter, solid execution drove the company's fifth consecutive quarter of positive comparable sales in our International markets, while North America results reflected a weak consumer backdrop and elevated promotional environment," said CEO Todd Penegor. In other words: overseas, the plan is working. At home, it's a scrap for every dollar.
The company is still growing its footprint. It opened 142 new restaurants systemwide in the quarter—41 in North America and 101 internationally. As of late December, there were 6,083 Papa John's restaurants operating across 50 countries and territories.
All those promotions come at a cost. The company's quarterly adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was $51 million, down from $58 million a year ago. Papa John's said the decrease was "primarily attributable to higher expenses related to incremental investment in marketing and promotional campaigns." They're spending more to try and sell more, and it's squeezing their profitability. The company ended the quarter with $36.950 million in cash and equivalents.
