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Papa John's (PZZA) Digital Efforts Strong, Macro Challenges Ail
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Papa John’s International, Inc. (PZZA - Free Report) will likely benefit from digital initiatives, menu innovation and unit-expansion efforts. This and the emphasis on the strengthening of its franchise network bode well. However, the challenging macro environment and inflationary pressures are headwinds.
Let’s discuss why investors should retain the stock for the time being.
Factors Driving Growth
Papa John’s is making substantial investments in technology-focused strategies, mainly digital ordering, to drive sales. Their online and digital marketing efforts have notably expanded in recent years, responding to the rising utilization of online and mobile web technology. Papa John’s remains steadfast in its dedication to enhancing customer experiences by refining its digital ordering procedures.
A key part of their strategy involves optimizing digital platforms, capitalizing on the company’s expertise in handling a large volume of online transactions. Collaborating with third-party aggregators has widened their market reach. During the third quarter of fiscal 2023, digital channels contributed more than 85% to sales. The company intends to focus on streamlining the digital ordering process with clear, swift and user-friendly menu navigation, thereby aiming to boost attachment rates.
Papa John’s continues to focus on product introduction to drive growth. During the fiscal third quarter, the company expanded its Epic Stuffed Crust Pizza platform with new Garlic Epic Stuffed Crust Pizza. It also launched new all-white meat Boneless Wings. The items supported the company’s barbell strategy in lieu of providing value across a broad range of price points and product offerings. The company stated that it has significant LTO and long-term platform launches in the pipeline. We believe that menu innovation efforts will likely drive long-term ticket and transaction growth in the upcoming periods.
Papa John’s is dedicated to nurturing and strengthening its franchise network, aiming to streamline growth in current international markets and explore new opportunities. In the third quarter of fiscal 2023, the company unveiled eight new units in North America and 37 in international locations. North American openings showcased promising performances. Additionally, during this quarter, the company procured 27 Papa John’s restaurants in the U.K.
Similar to previous years, the developmental focus is skewed toward the latter half of the year, with a significant number of openings projected for the fourth quarter of fiscal 2023. The company anticipates its global development to be between 245 and 260 net new units in the fiscal 2023.
Image Source: Zacks Investment Research
Shares of Papa John's have gained 16.6% in the past three months compared with the industry’s growth of 12.9%.
Concerns
Papa John's has been witnessing a challenging macro environment, including softening economic conditions (in the U.K.) and inflationary pressures. During the fiscal third quarter, the company’s international comps were affected by challenges in the U.K. market. Adverse macroeconomic conditions resulted in negative comparable sales and a challenging operating environment for its franchisees. During the quarter, comps at international restaurants were down 0.3% year over year compared with 10.1% in the prior-year quarter.
For the fiscal fourth quarter, the company foresees comps to remain under pressure owing to geopolitical uncertainty in the Middle East. It also expects headwinds within Asia markets.
Zacks Rank & Key Picks
Papa John's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Arcos Dorados Holdings Inc. (ARCO - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 28.3% on average. Shares of ARCO have surged 56.5% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago period’s levels.
Wingstop Inc. (WING - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 28.9%, on average. The stock has gained 84.9% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests rises of 15.8% and 18.2%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 23.7% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5.1% and 26.2% growth, respectively, from the year-ago period’s levels.
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Papa John's (PZZA) Digital Efforts Strong, Macro Challenges Ail
Papa John’s International, Inc. (PZZA - Free Report) will likely benefit from digital initiatives, menu innovation and unit-expansion efforts. This and the emphasis on the strengthening of its franchise network bode well. However, the challenging macro environment and inflationary pressures are headwinds.
Let’s discuss why investors should retain the stock for the time being.
Factors Driving Growth
Papa John’s is making substantial investments in technology-focused strategies, mainly digital ordering, to drive sales. Their online and digital marketing efforts have notably expanded in recent years, responding to the rising utilization of online and mobile web technology. Papa John’s remains steadfast in its dedication to enhancing customer experiences by refining its digital ordering procedures.
A key part of their strategy involves optimizing digital platforms, capitalizing on the company’s expertise in handling a large volume of online transactions. Collaborating with third-party aggregators has widened their market reach. During the third quarter of fiscal 2023, digital channels contributed more than 85% to sales. The company intends to focus on streamlining the digital ordering process with clear, swift and user-friendly menu navigation, thereby aiming to boost attachment rates.
Papa John’s continues to focus on product introduction to drive growth. During the fiscal third quarter, the company expanded its Epic Stuffed Crust Pizza platform with new Garlic Epic Stuffed Crust Pizza. It also launched new all-white meat Boneless Wings. The items supported the company’s barbell strategy in lieu of providing value across a broad range of price points and product offerings. The company stated that it has significant LTO and long-term platform launches in the pipeline. We believe that menu innovation efforts will likely drive long-term ticket and transaction growth in the upcoming periods.
Papa John’s is dedicated to nurturing and strengthening its franchise network, aiming to streamline growth in current international markets and explore new opportunities. In the third quarter of fiscal 2023, the company unveiled eight new units in North America and 37 in international locations. North American openings showcased promising performances. Additionally, during this quarter, the company procured 27 Papa John’s restaurants in the U.K.
Similar to previous years, the developmental focus is skewed toward the latter half of the year, with a significant number of openings projected for the fourth quarter of fiscal 2023. The company anticipates its global development to be between 245 and 260 net new units in the fiscal 2023.
Image Source: Zacks Investment Research
Shares of Papa John's have gained 16.6% in the past three months compared with the industry’s growth of 12.9%.
Concerns
Papa John's has been witnessing a challenging macro environment, including softening economic conditions (in the U.K.) and inflationary pressures. During the fiscal third quarter, the company’s international comps were affected by challenges in the U.K. market. Adverse macroeconomic conditions resulted in negative comparable sales and a challenging operating environment for its franchisees. During the quarter, comps at international restaurants were down 0.3% year over year compared with 10.1% in the prior-year quarter.
For the fiscal fourth quarter, the company foresees comps to remain under pressure owing to geopolitical uncertainty in the Middle East. It also expects headwinds within Asia markets.
Zacks Rank & Key Picks
Papa John's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Arcos Dorados Holdings Inc. (ARCO - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 28.3% on average. Shares of ARCO have surged 56.5% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago period’s levels.
Wingstop Inc. (WING - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 28.9%, on average. The stock has gained 84.9% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests rises of 15.8% and 18.2%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 23.7% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5.1% and 26.2% growth, respectively, from the year-ago period’s levels.