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Papa John's (PZZA) Down 1.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Papa John's (PZZA - Free Report) . Shares have lost about 1.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Papa John's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Papa John's Q3 Earnings Beat Estimates, Increase Y/Y

Papa John’s reported solid third-quarter fiscal 2020 results, wherein earnings and revenues not only beat the Zacks Consensus Estimate but also grew on a year-over-year basis.

Adjusted earnings of 35 cents per share surpassed the Zacks Consensus Estimate of 32 cents by 9.4% and increased 420% year over year. In the prior-year quarter, the company reported adjusted loss of 7 cents per share.

During the fiscal third quarter, total revenues of $472.9 million surpassed the Zacks Consensus Estimate of $467 million by 1.3%. Moreover, the top line grew 17.1% on a year-over-year basis. Notably, the upside can be attributed to strong comparable sales in North America, higher franchise royalties and commissary revenues.

Global Restaurant Sales & Comps

In the fiscal third quarter, global restaurant sales rose 21.6% compared with 2.3% growth reported in the prior-year quarter. Excluding foreign currency impact, global restaurant sales rose 22.1% compared with 3.3% growth in the year-ago quarter.

Domestic company-owned restaurant comps moved up 18.2% in the reported quarter compared with 2.2% growth in the year-ago quarter.

At North America franchised restaurants, comps rose 25.6% compared with 0.6% growth in the year-ago quarter. Also, comps at system-wide North America restaurants improved 23.8% compared with 1% growth in the year-ago quarter

Comps at system-wide international restaurants were up 20.7% compared with 1.6% growth in the prior-year quarter.

Operating Highlights

Total operating income in the fiscal third quarter was $24.5 million compared with $4.9 million in the year-ago quarter. Total costs and expenses amounted to $448.4 million, up 12% from the prior-year quarter.

Balance Sheet

As of Sep 27, 2020, cash and cash equivalents totaled $140.1 million compared with $27.9 million as on Dec 29, 2019. Long-term debt was $328.1 million at the end of third-quarter fiscal 2020 compared with $347.3 million at 2019-end.

Inventories at the end of the reported quarter increased to $28.7 million from $27.5 million on Dec 29, 2019. Free cash flow for the nine months ended Sep 27, 2020, totaled $134 million compared with $15.8 million in the year-ago period.

The company paid out common and preferred stock dividends worth $10.8 million in the fiscal third-quarter 2020 and announced fourth-quarter 2020 dividends of approximately $10.8 million. The fourth-quarter dividend will be payable to common shareholders on Nov 20, 2020, while the preferred dividends will be paid on Jan 4, 2021. Meanwhile, the company launched a new share repurchase program worth $75 million, effective through Dec 31, 2021.

Unit Developments

During the fiscal third quarter, Papa John’s opened 14 new restaurants in North America and exited 12. In international markets, the company opened 40 new restaurants and exited 29. As of Sep 27, the company had a global restaurant count of 5,360, thereby operating in 48 countries and territories worldwide.

Meanwhile, the company had approximately 1,380 restaurants (180 units in North America and 1,200 units internationally) in the development pipeline. Majority of the restaurants are scheduled to open over the next six years. This also includes 49 stores in Philadelphia and southern New Jersey, which are likely to open between 2021 and 2028.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -6.81% due to these changes.

VGM Scores

At this time, Papa John's has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Papa John's has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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