Back to top

Analyst Blog

Following its success in the U.S., Papa John's International Inc. (PZZA - Snapshot Report) has put forward a package of incentives for its Canadian franchisees to shore up its Canadian franchisee business.

The initiative is a part of the company’s ‘Canadian Development Incentive Program’, which exempts potential franchisees from opening fees (standard fee is $25,000). A reduced royalty payment for up to 30 months is also included in the program.

Franchisees signing new Canadian unit development agreements through Aug 30, 2013, for new restaurant openings on or before Dec 29, 2013, will be eligible for this program.

The latest scheme basically evolved from the company’s ‘Domestic Franchise Development Incentives’ that were introduced in 2009 to increase unit openings. According to management, the program has garnered huge acceptance so far and boosted its unit openings considerably since 2009.

Papa John’s, the world’s third largest pizza company, believes that these support programs help gain market share as well as reduce potential unit closures amid a tough economic condition. This Louisville, KY-based company also uses several other options in the U.S. such as Franchisee Loans, Franchise Insurance Program, Franchise Training and Support.

There is also a ‘Franchise Support Initiative’ in place that includes food cost relief by lowering the commissary margin on certain commodities sold to franchisees, targeted royalty relief, local marketing support and more.

Presently, most of the companies are transforming to a more franchise-centric model to reduce the volatility in earnings and increase cash flow generation. As of Sep 23, 2012, Papa John’s had 4,029 restaurants in 50 states across 34 countries. In 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.

We remain encouraged by the company’s long and successful track record, continued uptrend in earnings, upbeat guidance, viable business strategy and strong balance sheet. In fact, this latest strategy of freebies-to-franchisee will help it to strengthen its franchisee network and perform better going forward.

Papa John’s currently carries a Zacks Rank #3 (Hold). However, some restaurant companies which are expected to perform well include  Krispy Kreme Doughnuts Inc. (KKD - Snapshot Report) carrying a Zacks Rank #1 (Strong Buy) and AFC Enterprises Inc. and The Cheesecake Factory Inc. (CAKE - Analyst Report) both carrying a Zacks Rank #2 (Buy).
 

Please login to Zacks.com or register to post a comment.