Papa John's International, Inc. (PZZA - Free Report) has announced the launch of its first restaurant under PJ Western franchise in Almaty, Kazakhstan. The franchise — which already operates 181 Papa John's in Russia, Belarus, Kyrgyzstan and Poland — aims to open 16 restaurants in Kazakhstan. The second restaurant in Almaty is scheduled to open in October. Additionally, the company has mentioned that it is looking for budding franchisees in Paris, France; Belgium and Denmark.
The move underscores the sincere efforts of Papa John’s in expanding its footprint beyond the domestic sphere and strengthening its franchise relations. This may also be part of the restaurant’s efforts to revive its brand name and consequently solidify its presence.
As is known, apart from witnessing a consistent decline in revenue trends, Papa John’s has been under the spotlight of negative publicity after its ex-CEO, John Schnatter has been publicly denounced for making a racist comment. Since then, Papa John’s has been relentlessly trying to distance itself from Schnatter, and craft various ways to regain its brand image and sales trend.
Notably, a look at Papa John’s price trend revealed that the stock had an unimpressive run on the bourses in the past year. Shares of the company have lost 39.8% against the industry’s collective growth of 6.9% during the same time frame.
Expansion to Aid Global Sales
The move is expected to boost Papa John’s global sales, which is also suffering of late. In the second quarter, global restaurant sales decreased 2.3%, comparing unfavorably with the last-reported quarter’s decline of 1.3% and the year-ago quarter’s growth of 4.1%. Moreover, comps at system-wide international restaurants were down 0.8% compared with comps growth of 3.9% in the prior-year quarter.
In order to boost global sales trend, Papa John's has inked developmental agreements in many regions, including Mexico, Egypt, Russia, Spain, Chile, the Netherlands, Colombia and Boston. It has also debuted in France and Israel in the past year, and in Morocco in 2017. Meanwhile, the company plans to open five units in the Bahamas by 2021.
Focus on Franchise Relations
The fact that Papa John’s is developing restaurants through its largest international franchise in Kazakhstan shows that the company is deeply committed to develop and maintain a strong franchise system. It is also looking for increasing its franchise relations in order to eliminate barriers to expansion in existing international markets and identify market opportunities. Except for 35 company-owned restaurants in Beijing and North China, all of Papa John’s international restaurants are currently franchised.
We believe, re-franchising a large chunk of its system reduces the company’s capital requirements, and facilitates earnings per share growth and ROE expansion. Alongside, free cash flow continues to grow, allowing reinvestment for increasing brand recognition and shareholder return.
Zacks Rank & Stocks to Consider
Papa John’s currently carries a Zacks Rank #5 (Strong Sell). A few better-ranked restaurant stocks include BJ’s Restaurants (BJRI - Free Report) , Darden (DRI - Free Report) and Dine Brands (DIN - Free Report) . While BJ’s Restaurants sports a Zacks Rank #1 (Strong Buy), Darden and Dine Brands carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BJ’s Restaurants, Darden and Dine Brands’ earnings for 2018 are projected to increase 50.4%, 14.4%, and 25.5%, respectively.
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