Papa John’s International, Inc. ( PZZA Quick Quote PZZA - Free Report) is benefitting from menu innovation, digital efforts, and franchising initiatives. Also, focus on loyalty program bodes well. So far this year, shares of Papa John’s have gained 49.8% compared with the industry’s 14.3% growth. The price performance was backed by a solid earnings surprise history. Papa John’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters. Earnings estimates for 2021 and 2022 have moved up 11.8% and 10.6%, respectively, in the past 60 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Image Source: Zacks Investment Research Major Growth Drivers Focus on Menu Innovation: The company continues to focus on product introduction to drive growth. Notably, menu innovations like toasted handheld Papadias and Epics Stuffed Crust continue to witness solid popularity among customers, thereby boosting the top line. Backed by better brand positioning, the new products have driven higher ticket and traffic across dayparts without cannibalizing core premium products and complexing operations at other stores. During second-quarter fiscal 2021, the company launched Parmesan Crusted Papadias. Given the solid consumer acceptance with reference to the Papadias platform and Epics Stuffed Crust, the company expects the products to drive ticket and customer traffic in the second half of 2021. Digitization Efforts: Papa John’s is investing heavily in technology-driven initiatives like digital ordering to boost sales. The company’s online and digital marketing activities have increased significantly in the past several years in response to increasing utilization of online and mobile web technology. In fact, Papa John’s is committed toward providing better customer experience with enhancements to digital ordering process. The company’s loyalty program continues to witness a rise in digital transactions during second-quarter fiscal 2021. Notably, features like early access to new products coupled with better targeting of offers and promotions as well as higher frequency and ticket have been benefitting the company. Emphasis on Franchising: Meanwhile, Papa John’s is committed toward developing and maintaining a strong franchise system. The company is continually striving to eliminate barriers for expansion in existing international markets and identify new market opportunities. Over the next several years, the company plans to increase its international units, a large portion of which will be franchised.
Meanwhile, the company expanded its partnership with Drake Food Service International to open more than 220 Papa John’s restaurants by 2025. This includes more than 170 stores across Latin America, Spain and Portugal. Drake Food Service plans to open 50 new restaurants in the U.K. over the next four years. The company already purchased 60 Papa John’s restaurants in London, making it the brand’s largest franchisee in the country. Under the terms of this expanded partnership, Drake Food Service will operate more than 560 Papa John’s restaurants by 2025.
We believe that re-franchising a large chunk of its system reduces a company’s capital requirements and facilitates earnings per share growth and ROE expansion. Alongside, free cash flow continues to grow that is facilitating reinvestment for increasing brand recognition and shareholder return.
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