Papa John’s International, Inc. (PZZA Quick QuotePZZA - Free Report) is likely to benefit from menu innovation, digital initiatives and unit-expansion efforts. Emphasis on the Papa Rewards loyalty program also bodes well. However, a challenging macro environment and soft comps are headwinds.

Let’s delve deeper.

Strategic Efforts Aid PZZA’s Prospects

Papa John’s is focused on revitalizing its North America operations through five strategic priorities. These include enhancing the core product proposition, optimizing menu innovation, amplifying marketing efforts, modernizing its tech stack and delivering exceptional customer experiences. Investments in digital platforms and loyalty programs, such as the enhanced Papa Rewards initiative, aim to drive higher customer engagement and transaction frequency. The company is positioning itself to meet evolving consumer preferences while improving operational efficiency by simplifying processes, introducing value-driven offerings and leveraging technology.

Internationally, Papa John’s is adopting a market-specific approach, targeting key regions like China, Korea and Spain with tailored strategies that emphasize local preferences. The company is also expanding in Latin America and building on the success of its U.K. operations. These efforts are bolstered with the establishment of regional support centers and leadership appointments to align global best practices with localized execution.

Despite sales challenges in North America, the company is making progress in addressing value perception and shifting consumer preferences. Initiatives such as Papa Pairings promotions and a renewed focus on carryout options have already begun to yield positive results, with carryout transactions turning positive in September. While external pressures persist, Papa John’s is taking proactive steps to narrow its value perception gap and capture incremental growth opportunities over time.

The company is enhancing its rewards loyalty program to drive growth and strengthen customer engagement by offering a more flexible and accessible system. The program integrates seamlessly with PZZA’s messaging strategies to foster emotional connections and consistent interactions. Key upgrades in the fourth quarter include faster unlocking of Papa Dough rewards by converting points in smaller increments, encouraging higher activation rates and increased transaction frequency. These changes aim to deliver immediate gratification and reduce the time between customer visits. While focusing on short-term improvements, Papa John’s is also building a robust long-term loyalty structure to deliver compelling rewards, attract new members and meet evolving customer expectations.

Headwinds: Dismal Price & Comps Performance

Image Source: Zacks Investment Research

Stock Performance: In the past year, shares of Papa John's have lost 23.7% against the industry’s growth of 12.1%. Softer sales trends caused by macroeconomic pressures and shifts in consumer spending primarily led to the downside.

Dismal Comps: In the third quarter, total comparable sales declined 4.9% year over year against 2.2% growth in the prior-year quarter. Domestic company-owned restaurant comps in the quarter declined 6.7% year over year against 5.9% growth in the year-ago quarter. At North America’s franchised restaurants, comps fell 5.3% year over year against 2.2% growth in the year-ago quarter. Comps at North America’s restaurants declined 5.6% year over year against 2.9% growth in the year-ago quarter. The downside was primarily due to lower transaction volumes.

The company's outlook for the rest of the year indicates a cautious approach, with North America's comparable sales experiencing a 4% decline in the first four weeks of October. This trend may continue due to ongoing economic challenges and weakening consumer confidence. Consequently, PZZA has adjusted its full-year guidance to reflect this cautious outlook, anticipating North America's comparable sales to be down in the range of 3.5% to 4.5%.

Time to Keep an Eye on PZZA Stock?

While Papa John’s faces short-term headwinds, including a challenging macroeconomic environment and declining comparable sales, its strategic initiatives provide a solid foundation for long-term growth. The company’s focus on menu innovation, enhanced digital platforms and a revamped loyalty program demonstrates its commitment to meeting evolving consumer preferences and driving customer engagement. Additionally, international expansion and tailored market strategies are expected to unlock new growth opportunities. Investors should consider retaining PZZA stock as the company navigates this transitional phase. Its Zacks Rank #3 (Hold) justifies our thesis.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector have been discussed below.

Deckers Outdoor Corporation (DECK Quick QuoteDECK - Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

DECK has a trailing four-quarter earnings surprise of 41.1%, on average. The stock has gained 19.9% in the past six months. The Zacks Consensus Estimate for DECK’s fiscal 2025 sales and EPS indicates growth of 13.6% and 12.6%, respectively, from the year-ago period’s levels.

Brinker International, Inc. (EAT Quick QuoteEAT - Free Report) presently flaunts a Zacks Rank of 1. EAT has a trailing four-quarter earnings surprise of 12.1%, on average. The stock has surged 82.7% in the past six months.

The consensus estimate for EAT’s fiscal 2025 sales and EPS indicates growth of 7.9% and 34.6%, respectively, from the year-ago period’s levels.

Sprouts Farmers Market, Inc. (SFM Quick QuoteSFM - Free Report) currently sports a Zacks Rank of 1. SFM has a trailing four-quarter earnings surprise of 15.3%, on average. The stock has risen 46.1% in the past six months.

The Zacks Consensus Estimate for SFM’s 2024 sales and EPS indicates a rise of 12.2% and 29.6%, respectively, from the year-ago period’s levels.