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Why Is Papa John's (PZZA) Down 2.6% Since Last Earnings Report?

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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 2.6% 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 Q4 Revenues Beat Estimates, Increase Y/Y

Papa John’s reported mixed fourth-quarter fiscal 2020 results, wherein earnings missed the Zacks Consensus Estimate while revenues topped the same. Nonetheless, earnings and revenues increased year over year.

Even though earnings of 40 cents per share missed the Zacks Consensus Estimate of 43 cents by 6.9%, it increased significantly year over year. In the prior-year quarter, the company reported adjusted loss of 25 cents per share.

During the fiscal fourth quarter, total revenues of $469.8 million surpassed the Zacks Consensus Estimate of $465.5 million by 0.9%. Moreover, the top line grew 12.5% on a year-over-year basis. Notably, the upside can be attributed to strong comparable sales in North America as well as sales from system-wide international restaurants, higher franchise royalties and commissary revenues.

Rob Lynch, president & CEO of Papa John’s, said, “Q4 2020 was the third consecutive quarter of double-digit comparable sales growth and the sixth straight quarter of positive comparable sales in North America. We ended the year with the launch of Epic Stuffed Crust, the biggest product innovation in the company’s history, and our future is extremely bright.”

Global Restaurant Sales & Comps

In the fiscal fourth quarter, global restaurant sales rose 15.5% compared with 4.4% growth reported in the prior-year quarter. Excluding foreign currency impact, global restaurant sales rose 15.4% compared with 4.7% growth in the year-ago quarter.

Domestic company-owned restaurant comps moved up 10.2% in the reported quarter compared with 4.1% growth in the year-ago quarter.

At North America franchised restaurants, comps rose 14.5% compared with 3.3% growth in the year-ago quarter. Also, comps at system-wide North America restaurants improved 13.5% compared with 3.5% growth in the year-ago quarter.

Comps at system-wide international restaurants were up 21.4% compared with 2.4% growth in the prior-year quarter.

Operating Highlights

Total operating income in the fiscal fourth quarter was $19.7 million compared with an operating loss of $0.1 million in the year-ago quarter. Total costs and expenses amounted to $450.1 million, up 7% from the prior-year quarter

Balance Sheet

As of Dec 27, 2020, cash and cash equivalents totaled $130.2 million compared with $27.9 million as on Dec 29, 2019. Long-term debt (less current portion) was $328.3 million at the end of fiscal 2020 compared with $347.3 million at 2019-end.

Inventories as of Dec 27, 2020, increased to $30.3 million from $27.5 million on Dec 29, 2019. Free cash flow in 2020 totaled $137.1 million compared with $14 million in the year-ago period.

The company paid out common and preferred stock dividends worth $10.9 million in fourth-quarter fiscal 2020 and announced first-quarter 2021 dividends of approximately $10.8 million. The first-quarter dividends were paid to the common shareholders on Feb 19, 2021, while the preferred dividends will be paid on Apr 1, 2021.

Unit Developments

During the fiscal fourth quarter, Papa John’s opened 25 new restaurants in North America and exited 22. In international markets, the company opened 73 new restaurants and exited 36. As of Dec 27, the company had a global restaurant count of 5,400, thereby operating in 48 countries and territories worldwide.

Meanwhile, the company had approximately 1,460 restaurants (210 units in North America and 1,250 units internationally) in the development pipeline. Majority of the restaurants are scheduled to open over the next six years.

2020 Highlights

Net sales in 2020 came in at $1,813.2 million compared with $1,619.2 million in 2019, up 12%.

In 2020, comparable sales rose 17.6% in North America and 12.6% internationally.

Total cash flow from operations increased to $186.4 million from $61.7 million in 2019.

Adjusted earnings per share in 2020 came in at $1.40 compared with 3 cents in 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

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 an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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. Notably, Papa John's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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