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Factors Setting the Tone for Papa John (PZZA) Earnings in Q3

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Papa John’s International, Inc. (PZZA - Free Report) is scheduled to report third-quarter 2018 financial numbers on Nov 6. Notably, the company’s earnings have missed the Zacks Consensus Estimate in two out of the trailing four quarters, the average miss being 5.5%.

What to Expect?

The Zacks Consensus Estimate for third-quarter earnings is pegged at 23 cents, which marks a decline of 61.7% from the year-ago quarter. Meanwhile, the Zacks Consensus Estimate for revenues stands at $384.4 million, reflecting a drop of nearly 11% from the prior-year quarter.

Let’s delve deeper to find out how the company’s top and bottom line will shape up this earnings season.

Factors at Play

Soft comps performance, higher costs and a challenging sales environment in the industry are likely to affect Papa John’s earnings in the soon-to-be reported quarter. The company has reported disappointing results over the past couple of quarters and we expect the downtrend to persist. In the last reported quarter, domestic company-owned restaurant comps fell 6.1% and comps at North America franchised restaurants dropped 7.2%. Hence, declining comps remain a major concern for investors.

Moreover, weak North America commissary sales have been weighing on the company’s performance for quite some time. Also, higher labor costs due to the implementation of The Affordable Care Act, commonly known as Obamacare, are likely to hurt profits. Adjusted earnings are expected to be impacted by lower operating results, primarily from expected pressure on Domestic restaurants’ sales, increased delivery and insurance costs for the company-owned restaurants, and higher costs for technology and marketing investments.

Meanwhile, total operating margin was 6.2% in the second quarter marking a decrease of 240 basis points (bps) from the year-ago quarter. Thus, Papa John’s operating margin is likely to get affected like in the prior quarters.

Papa John's International, Inc. Price and Consensus


Papa John's International, Inc. Price and Consensus | Papa John's International, Inc. Quote

What Does the Zacks Model Unveil?

Our proven model does not show that Papa John’s is likely to beat earnings estimates in the third quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Papa John’s has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell).

We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the Retail- Wholesale space, which per our model have the right combination of elements to post earnings beat in their respective quarters.

RH (RH - Free Report) sports a Zacks Rank #1 and has an Earnings ESP of +1.39%. The company is expected to report quarterly results on Dec 4.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Jack in the Box Inc. (JACK - Free Report) has an Earnings ESP of +2.38% and a Zacks Rank #3. The company is anticipated to report quarterly results on Dec 5.

American Eagle Outfitters (AEO - Free Report) has an Earnings ESP of +2.95% and a Zacks Rank #3. The company is anticipated to report quarterly results on Dec 5.

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