Papa John's Forays into Azerbaijan

Consistent with its focus on international expansion, Papa John’s International ( PZZA - Snapshot Report ) recently opened its first restaurant in Baku, Azerbaijan. This Louisville, Kentucky-based restaurateur now plans to spread across the Azerbaijan market in association with PJA Limited, over the next few years.

PJA Limited offers dine-in and delivery services and has superior local market knowledge. The above mentioned deal affirms management’s intent to make Azerbaijan one of the prime markets for international expansion considering its vibrant economy. Azerbaijan is a strategic fit for new openings, as it is an important tourist destination and boasts an abundance of natural resources.

The country’s capital, Baku, is particularly an oil-rich city. Its petroleum exports make it a large contributor to Azerbaijan's economy. The company seeks to fully capitalize on the country’s potential. Papa John’s will now cater to more than 2 million residents in Baku.

According to Euromonitor, demand for pizza consumer food service is higher in Azerbaijan. It is observed that the country’s younger population is more inclined toward western fast-food chains.

Moreover, the saturation in the domestic pizza category along with the emergence of other quick service brands have led major pizza companies to venture outside the border in search of better opportunities.

Papa John’s is not the only U.S. based food chain that is expanding in Azerbaijan; The Wendy’s Co. ( WEN - Analyst Report ) is also tapping the market in association with the Wissol Group.

Papa John’s opened 67 restaurants and closed 27 restaurants in its second quarter 2012, representing a worldwide increase of 6.4%. As of June 24, 2012, Papa John’s had 3,973 restaurants in 50 states across 33 countries.

By the next six years, the company expects to open approximately 1,500 restaurants, including 300 in North America and 1,200 in the international market. At the end of the second quarter, Papa John’s had 855 restaurants operating outside the United States. Papa John’s has been operating in the international arena for 13 years.

For 2012, Papa John’s expects comparable store sales in the range of 4%–5% on the international front, and the same for the domestic front is expected to be in the range of 2%–3%.

Papa John’s currently carries a Zacks #2 Rank, implying a short-term ‘Buy’ rating. We also reiterate our long-term ‘Outperform’ recommendation on the stock.