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Papa John's (PZZA) Poised for Solid Growth Despite Risks
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On Mar 10, we issued an updated research report on Papa John's International Inc. (PZZA - Free Report) , which operates and franchises pizza delivery and carryout restaurants in the U.S and internationally.
The company’s continued international expansion plans, strategic partnerships, strong digital platform and various sales initiatives continue to enhance prospects. Also, the company’s commitment to provide quality food and deliver better ingredients to its customers is commendable and should appeal to the health conscious customers.
Global Presence
Papa John’s is the third largest take-out and pizza delivery restaurant chain in the world. The company’s focus on expanding its reach and gaining more market share bodes well for its revenue growth. Thus, large scale international expansion has been the backbone of Papa John’s operations recently. Notably, the fourth quarter of 2016 marked the 28th consecutive quarter of positive comps in the international segment.
Currently, the company has more than 1650 international restaurants in 45 countries and is planning to expand in Brazil, Honduras, Uruguay as well as the Bahamas. The brand has started to move into the Northern Africa region, anticipating opportunities there, and eventually wants to enter South Africa too. Last year, the company inked developmental agreements in many regions – including Mexico, Egypt, Russia and Spain – as well as debuted in France and Israel. It operates over 350 restaurants in the U.K. itself and is expected to continue gaining significantly from this market.
Meanwhile, over 85% of the company’s restaurants are franchised and a large part of the upcoming international units are also expected to be so. We believe re-franchising efforts will help the company reduce its capital requirements and facilitate earnings per share growth and ROE expansion.
Partnerships & Other Initiatives
Papa John’s is the official pizza sponsor of the Major League Baseball (MLB) and National Football League (NFL). In Feb 2017, the brand was also named the Official Pizza Partner of National Hot Rod Association (NRHA). Notably, these sports partnerships continue to drive growth on the local and national levels as they increase the company’s visibility as a brand and attract customers through digital and social media.
Going forward, Papa John’s remains well positioned for growth on the back of various initiatives to boost sales and operational efficiency. In addition to providing limited time offers, the company continues to test new menu items. In Oct 2016, Papa John’s launched one of its biggest product innovations in a decade, Papa John’s Pan Pizza. This new launch was very well received by the customers and is expected to further drive up demand and sales.
Moreover, the company’s online and digital marketing activities have increased significantly over the past several years. Also, Papa John’s aims to continue making investments in technology which will be focused on foundational improvements to their digital channels to increase order conversion rate, frequency and ticket average.
In fact, in the first quarter of 2016, Papa John’s became the first pizza chain to reach 55% online sales mix. The company aims to arrive at 60% in the coming years, with the long-term target of reaching 80% eventually. Also, its mobile ordering applications support category-leading five simple, secure, and mobile-friendly ways to pay online orders without using cash or credit card, thereby improving guest experience.
Risks
Owing to its large international presence, Papa John’s is exposed to risks of fluctuations in currency exchange rates, which impacts the company’s top-line.
Apart from this, the restaurant industry has also been experiencing low consumption over the last few quarters. Higher health care costs and still-tightened credit availability continue to hurt consumer discretionary spending in the U.S. As a result, Americans are unwilling to dine out, which is hurting the company’s sales.
Further, increasing competition from other pizza giants like Domino’s Pizza, Inc. (DPZ - Free Report) , YUM! Brands, Inc.’s (YUM - Free Report) Pizza Hut and Papa Murphy’s Holdings, Inc. (FRSH - Free Report) could also weigh on the top line.
Bottom Line
Notably, estimates for full-year 2017 have been moving up over the last 60 days, testifying to the unwavering confidence that analysts have in the company. Moreover, Papa John’s earnings surpassed the Zacks Consensus Estimate consistently in each of the trailing four quarters, with an average beat of 10.26%. Thus, considering all the factors, we believe Papa John’s is on the track for solid growth and the stock should keep performing well in the quarters ahead.
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Papa John's (PZZA) Poised for Solid Growth Despite Risks
On Mar 10, we issued an updated research report on Papa John's International Inc. (PZZA - Free Report) , which operates and franchises pizza delivery and carryout restaurants in the U.S and internationally.
The company’s continued international expansion plans, strategic partnerships, strong digital platform and various sales initiatives continue to enhance prospects. Also, the company’s commitment to provide quality food and deliver better ingredients to its customers is commendable and should appeal to the health conscious customers.
Global Presence
Papa John’s is the third largest take-out and pizza delivery restaurant chain in the world. The company’s focus on expanding its reach and gaining more market share bodes well for its revenue growth. Thus, large scale international expansion has been the backbone of Papa John’s operations recently. Notably, the fourth quarter of 2016 marked the 28th consecutive quarter of positive comps in the international segment.
Currently, the company has more than 1650 international restaurants in 45 countries and is planning to expand in Brazil, Honduras, Uruguay as well as the Bahamas. The brand has started to move into the Northern Africa region, anticipating opportunities there, and eventually wants to enter South Africa too. Last year, the company inked developmental agreements in many regions – including Mexico, Egypt, Russia and Spain – as well as debuted in France and Israel. It operates over 350 restaurants in the U.K. itself and is expected to continue gaining significantly from this market.
Meanwhile, over 85% of the company’s restaurants are franchised and a large part of the upcoming international units are also expected to be so. We believe re-franchising efforts will help the company reduce its capital requirements and facilitate earnings per share growth and ROE expansion.
Partnerships & Other Initiatives
Papa John’s is the official pizza sponsor of the Major League Baseball (MLB) and National Football League (NFL). In Feb 2017, the brand was also named the Official Pizza Partner of National Hot Rod Association (NRHA). Notably, these sports partnerships continue to drive growth on the local and national levels as they increase the company’s visibility as a brand and attract customers through digital and social media.
Going forward, Papa John’s remains well positioned for growth on the back of various initiatives to boost sales and operational efficiency. In addition to providing limited time offers, the company continues to test new menu items. In Oct 2016, Papa John’s launched one of its biggest product innovations in a decade, Papa John’s Pan Pizza. This new launch was very well received by the customers and is expected to further drive up demand and sales.
Moreover, the company’s online and digital marketing activities have increased significantly over the past several years. Also, Papa John’s aims to continue making investments in technology which will be focused on foundational improvements to their digital channels to increase order conversion rate, frequency and ticket average.
In fact, in the first quarter of 2016, Papa John’s became the first pizza chain to reach 55% online sales mix. The company aims to arrive at 60% in the coming years, with the long-term target of reaching 80% eventually. Also, its mobile ordering applications support category-leading five simple, secure, and mobile-friendly ways to pay online orders without using cash or credit card, thereby improving guest experience.
Risks
Owing to its large international presence, Papa John’s is exposed to risks of fluctuations in currency exchange rates, which impacts the company’s top-line.
Apart from this, the restaurant industry has also been experiencing low consumption over the last few quarters. Higher health care costs and still-tightened credit availability continue to hurt consumer discretionary spending in the U.S. As a result, Americans are unwilling to dine out, which is hurting the company’s sales.
Further, increasing competition from other pizza giants like Domino’s Pizza, Inc. (DPZ - Free Report) , YUM! Brands, Inc.’s (YUM - Free Report) Pizza Hut and Papa Murphy’s Holdings, Inc. (FRSH - Free Report) could also weigh on the top line.
Bottom Line
Notably, estimates for full-year 2017 have been moving up over the last 60 days, testifying to the unwavering confidence that analysts have in the company. Moreover, Papa John’s earnings surpassed the Zacks Consensus Estimate consistently in each of the trailing four quarters, with an average beat of 10.26%. Thus, considering all the factors, we believe Papa John’s is on the track for solid growth and the stock should keep performing well in the quarters ahead.
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If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>