Papa John's International, Inc. (PZZA - Free Report) announced that it has expanded its footprint in the Middle East and Asia by opening the 50th restaurant in Turkey. Notably, the latest restaurant was opened under Papa John’s master franchise, PJ Gida Islatmeleri A.S. San. VE TIC. A.S. (PJ Gida) in Turkey.
The latest move underscores Papa John’s two basic strategies of continual international expansion and increased focus on franchising.
International Expansion to Drive Revenues
Papa John’s international operations have been showing positive comparable sales of late. In the first quarter of 2018, comps at system-wide international restaurants inched up 0.3%. The company also expects international comps to grow in the band of 3-5% in 2018. We believe that the launch of its 50th restaurant in Turkey further strengthened its global footprint, which in turn will drive greater sales in the company’s international reporting segment.
As it is, many of Papa John’s restaurants, located in the international markets like Europe, Middle East, Latin America and China are exhibiting strong sales trends. Further, Papa John's has inked developmental agreements in many regions including Mexico, Egypt, Russia, Spain, Chile, the Netherlands, Colombia and Boston. It also debuted in France and Israel in 2016, and Morocco in 2017. Meanwhile, the company plans to open five units in Bahamas by 2021.
Increased Focus on Franchising Bodes Well
Notably, Papa John’s is committed to develop and maintain a strong franchise system. The company is continually striving to eliminate its barriers to expansion in the existing international markets and identify new market opportunities. Except 35 of its company-owned restaurants in Beijing and North China, all Papa John’s international restaurants are currently franchised. Over the next several years, the company plans to increase its international units, large part of which will be franchised.
We believe, refranchising a large chunk of its system reduces the company’s capital requirements, and facilitates earnings per share growth and ROE expansion in the long run. Alongside, free cash flow of the company continues to grow, allowing reinvestment for increasing brand recognition and shareholders’ return. Moreover, since a major portion of its business is refranchised, Papa John’s is less affected by inflation than its peers.
A challenging sales environment in the U.S. restaurant space has been affecting the company for quite some time, as is evident from Papa John's performance of late. The company’s shares have declined 32.7% in the past year, widely underperforming the industry’s gain of 3.8%.
Zacks Rank & Stocks to Consider
Papa John’s carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the U.S. restaurant space include Wingstop (WING - Free Report) , Denny’s (DENN - Free Report) and Dine Brands (DIN - Free Report) . While Wingstop sports a Zacks Rank #1 (Strong Buy), Denny’s and Dine Brands carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Wingstop, Denny’s and Dine Brands’ earnings for 2018 are expected to increase 9.5%, 12.1% and 22.9%, respectively.
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