Recent Posts

PZZA (Post-Call): Margin Challenges Expected to Continue in Q4

Earlier today, Papa John’s reported adjusted Q3 EPS of $0.54, short of our $0.58 forecast and sell-side consensus (according to Consensus Metrix) of $0.61. Adverse factors hindering Q3 results included negative same-store sales in both North America and International, all-time high commodity costs, and wage inflation.

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1:03 PM

PZZA: Updating Our Forecasts

Back on August 31st, we raised our EPS estimates for Papa Johns, citing block cheese prices that had trended downward – important for a company that owns and operates about 9% of its store base. Block cheese closed on August 31st at $1.73 per pound (one cent above the 2012-21 historical average of $1.74 per pound).

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7:00 AM

PZZA: Some Cheesy Adjustments to Our EPS Estimates

On August 4th, when Papa Johns reported its Q2 earnings and hosted its related conference call, the company noted that its commodity costs were up by +18% year-over-year in Q2. The company cited cheese as a particular concern.

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7:00 AM

PZZA: Updating Our Q2E Same-Store Sales Estimate

Papa Johns continues to be amongst the most innovative pizza concepts in the U.S., with the first line extension of Epic Stuffed Crust Pizzas – the Epic Pepperoni Stuffed Crust Pizza – having officially launched nationwide on April 18th. In addition, we would not be surprised to see Papa Bowls go nationwide as soon as mid-July (supply-chain issues permitting).

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7:00 AM

PZZA (Post-Call): A Shaq-a-Rific Q3 for Papa John’s

Earlier today, Papa John’s reported adjusted Q3 EPS of $0.83, coming in ahead of our $0.78 forecast and sell-side consensus (according to Consensus Metrix) of $0.72. The Q3 adjusted tax rate was 12.4% according to our calculations, more favorable than our 20.5% projection and consensus of 20.5%. We further calculation that this difference added about +8 cents to Q3 adjusted EPS. In other words, excluding tax-rate help, Q3 adjusted EPS would have been -3 cents below our forecast, but still +3 cents above consensus.

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9:05 AM

PZZA: The Bull and Bear Cases on Papa John’s

In this report we examine the bull and bear cases regarding Papa John’s (PZZA; Buy, $101.83). While we maintain our Buy rating on PZZA — it continues to be our top small/mid-cap restaurant-stock pick — it is good for investors interested in PZZA to be aware of the bull and bear cases surrounding the stock, no matter what our rating on the shares is.

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4:46 PM

PZZA: Sometimes Dough Rises, Sometimes EPS Estimates Do Too

Based on Papa John’s recent announcement that it will repurchase/convert all the convertible preferred stock owned by a strategic investor, we raise our full-year 2021E EPS estimate by +15 cents, to $3.00. And, based on this higher anticipated base of earnings coming off of this year — as well as net EPS benefits from the repurchase/conversion in Q1 2022 and the first half of Q2 2022, that did not accrue in Q1 2021 and the first half of Q2 2021 — we take up our full-year 2022E EPS forecast by +15 cents, to $3.40.

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12:22 PM

PZZA (Post-Call): Q1 was Indeed Epic

Earlier today, Papa John’s reported adjusted Q1 EPS of $0.90, well above our $0.53 forecast and sell-side consensus (according to Consensus Metrix) of $0.56. The EPS outperformance appears mainly driven by much better-than-expected same-store sales. The Q1 tax rate of 20.4% was a little more favorable than our 21.0% estimate, as well.

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1:26 PM

PZZA: Updating our EPS and Same-Store Sales Forecasts

With this report, we increase our Q1E North American same-store sales forecast for Papa John’s by +130 basis points, to +13.5%. As of this writing, sell-side consensus (according to Consensus Metrix) is at +12.9%. Our increased forecast represents factors including: (1) quick-service delivery specialists still seem to be more appreciated by consumers in general, (2) stimulus-related consumer spending in January and in March, and (3) the return of the March Madness college basketball tournament — generating TV ratings on par with 2019 levels, unlike many other major sports games/events — seems to be driving demand for pizza delivery.

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4:12 PM

PZZA (Post-Call): Will Q1 be “Epic”?

Earlier today, Papa John’s (PZZA; Buy, $102.64) reported Q4 adjusted EPS of $0.40, matching our $0.40 forecast, but coming below sell-side consensus (according to Consensus Metrix) of $0.45. Keep in mind, special year-end bonuses hampered Q4 EPS by approximately -6 cents, and this may not have been taken into account by some sell-side firms’ estimates.

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5:49 PM

Updating our Q4E Kalinowski Quick-Service Pizza Same-Store Sales Index

With this report, we update our data-driven Kalinowski Quick-Service Pizza Index for Q4E to +12.1%. This figure is based on our latest proprietary checks/data as regards same-store sales performance for this segment during October, November, and December. We believe that December same-store sales were likely the best month of the quarter, while October was helped by arguably the busiest Halloween ever for pizza delivery/carryout.

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12:00 AM

Look to Popeyes to Learn about Domino’s and Papa John’s

Both Domino’s (DPZ; Buy, $392.57) and Papa John’s (PZZA; Buy, $80.36) begin lapping very difficult year-over-year domestic same-store sales comparisons in Q2 2021. What can we learn about the recent history of restaurant concepts that have lapped difficult comparisons, in this regard? And, what might Popeyes Louisiana Kitchen (owned by Restaurant Brands International [QSR; Not Rated]) teach us about what to expect for Domino’s and Papa John’s domestic same-store sales in 2021? Our bottom line is that Domino’s and Papa John’s could end up lapping these tough numbers better than the Street currently anticipates.

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12:00 AM

Large Restaurant Concepts Closing a Lot Less Units than Independent

Looking at unit closures announced and planned by large restaurant chains, and comparing these to unit closures from mom-and-pops/independents, goes to show just how large a market-share shift is going on in the U.S. restaurant industry. We look for most, if not all, of this market-share shift in favor of large concepts to persist in the years after 2020.

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12:00 AM

PZZA An “Epic” Update to our Same-Store Sales and EPS Estimates

We look for Papa John’s to launch Epic Stuffed Crust Pizzas nationwide in the U.S. shortly, with December 28, 2020 (the first day of Papa John’s fiscal 2021) one possible official launch date. This would not only be ahead of Super Bowl Sunday (scheduled for February 7, 2021), but also ahead of New Year’s Eve. In any case, it looks like a Q1 2021 launch date is likely, and sooner during that quarter rather than later.

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12:00 AM

PZZA (Post-Call) A Q3 EPS Beat… Will Epic Stuffed Crust Pizzas Launch in Q1

Earlier today, Papa John’s announced Q3 EPS of $0.35, ahead of our $0.30 forecast and sell-side consensus of $0.32 (according to Consensus Metrix). Given an all-time high quarterly cheese cost in Q3 (block cheese in general averaged about $2.25 per pound in Q3) and costs that hampered rival Domino’s (DPZ; Buy, $392.52) Q3 EPS — some of these costs COVID-related — PZZA shares could benefit from a “relief factor” as it trades today.

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12:00 AM

PZZA Possible Implications from Domino’s Lead to Updated Forecasts

Earlier today, Domino’s (DPZ; Buy, $403.46) reported a Q3 EPS miss relative to our expectations (and sell-side consensus). This miss was not caused by same-store sales trends, which came in above expectations for both the U.S. and International segments in Q3. Below the top line, multiple issues came into play, including spending related to the pandemic (such as higher pay for front-line employees, higher sick pay, and the need to buy more cleaning equipment), and what Domino’s described as all-time high cheese costs.

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12:00 AM

PZZA Opportunities to Grow the U.S. Franchisee Base (and Refranchise)

Quick-service pizza sector same-store sales have performed the best of any sector in the U.S. restaurant industry the last few months. This likely means that some large franchise companies who seek opportunities within the restaurant industry may examine possibilities in the pizza sector. Carryout/delivery pizza plays very well in a world uncertain about how COVID-19 and related issues will impact the future. On top of that, not only has Papa John’s (PZZA; Buy, $96.15) put up great domestic same-store sales numbers the last few months — up by +30.3% for June 29-July 26, of example — it also seeks franchisees. In this report, we examine some possible franchised companies that are not currently in the pizza space, but could join in under the right circumstances. All in all, we believe that Papa John’s is poised to reward shareholders by (1) improving the quality of its franchisee base, and (2) at some point engaging in meaningful refranchising activity, which could lead to a higher valuation multiple for PZZA shares.

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12:00 AM

PZZA (Post-Call) A Shaq-tastic Q2 and July

Earlier today, Papa John’s (PZZA; Buy, $99.14) reported adjusted Q2 EPS of $0.48, coming in meaningfully above our $0.35 forecast and sell-side consensus of $0.44. We had been concerned that costs related to franchisee assistance — which amounted to a -$0.12 hit in Q2 — would hold back Q2 earnings, but the strength of the business (North American same-store sales up a previously-announced +28.0%) more than made up for this. Built into our Q2E estimate heading into today was an EPS hit of -18 cents related to franchisee assistance, so even specific to Q2, this came in +6 cents better than we expected.

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12:00 AM

PZZA The Bull and Bear Case on Papa John’s

In this report we examine the bull and bear cases regarding Papa John’s (PZZA; Buy, $88.26). While we maintain our Buy rating on PZZA — it continues to be our top small/mid-cap restaurant-stock pick — it is good for investors interested in PZZA to be aware of the bull and bear cases surrounding the stock, no matter what our rating on the shares is.

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12:00 AM

Quick-Service Pizza Market Share Opportunities for DPZ & PZZA

Is it possible the Street is underestimating sales and market-share opportunities in 2021 for the larger publicly-traded quick-service pizza concepts? We believe that Domino’s (DPZ; Buy, $374.09) and Papa John’s (PZZA; Buy, $83.66) both remain well-positioned for the future for multiple reasons, but this particular factor may be underappreciated. Incidentally, it’s possible for Pizza Hut (owned by Yum Brands [YUM; Neutral, $86.55]) to benefit from the same issue, although Pizza Hut will over the short-to-medium term likely have to deal with net unit closures, limiting to some meaningful degree its opportunity to take market share from other pizza outlets’ closures.

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12:00 AM

PZZA Raising EPS Estimates Based on Appetizing Sales Trends

Earlier today, Papa John’s (PZZA; Buy, $76.32) reported that its North American same-store sales rose by a remarkable +33.5% for the April 27-May 24 timeframe. This comes on the heels of the previously-announced +26.9% for March 30-April 26, suggesting that Q2-to-date North American same-store sales are up by roughly +30% through May 24th. We raise our full-Q2E forecast by +900 basis points to +28.0%, which includes implied projections for May 25-June 28 of +20% for company-owned stores and +25% for franchised outlets.

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12:00 AM

PZZA The Latest Test Menu Items from Papa John’s U.S. are Epic

Get ready for more innovation from Papa John’s (PZZA; Buy, $78.11) — we have learned that Papa John’s U.S. is testing several varieties of “Epic Stuffed Crust Pizzas” in at least one test market (Indianapolis). We believe there is a chance that one or more stuffed crust pizzas could receive a nationwide rollout by the end of 2020.

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12:00 AM

PZZA Adjusting Q2E-Q3E EPS Estimates a Little More

Earlier today regarding Papa John’s (PZZA; Buy, $76.16), we adjusted our 2020E EPS estimate downward by -40 cents to $1.15, reflecting: (1) a -50 cent hit for Q1A-Q3E adjustments to how Papa John’s records franchisee financial assistance (related to royalty relief and the discretionary marketing fund), with -26 cents of this having taken place in Q1, and our estimate of -12 cent hits each to Q2E and Q3E, and (2) +10 cents reflecting better-than-expected April North American same-store sales trends and the momentum resulting from this.

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12:00 AM

PZZA (Post-Call) Well Blow Me Down! April Same-Store Sales Strong 2 the Finish

Earlier today, Papa John’s (PZZA; Buy, $76.16) reported Q1 EPS of $0.15, short of our $0.40 forecast and sell-side consensus (according to Consensus Metrix) of $0.41. However, the difference largely results from an accounting change in which “adjusted (non-GAAP) financial results… no longer present certain financial assistance provided to the North American system in the form of royalty relief and discretionary marketing fund investments as Special charges.” For Q1 2020, the impact to adjusted EPS from this change was -26 cents. In other words, excluding this change, Q1 EPS would have been $0.41 — one cent above our projection and matching consensus.

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12:00 AM

PZZA Some Cheesy Estimate Revisions

The price of block cheese has deteriorated from $1.8375 per pound as of March 23rd to $1.01 per pound as of April 14th. In our coverage list, the largest potential beneficiary of this dynamic is Papa John’s (PZZA; Buy), which owns and operates about 18% of its North American store base (or to look at it another way, Papa John’s owns and operates about 11% of its worldwide store base).

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12:00 AM

PZZA Updating Our Same-Store Sales and EPS Estimates for 2020E & 2021E

We adjust our North America blended (company-owned and franchised combined) same-store sales estimates for Papa John’s (PZZA; Buy) as follows:
Q1E 2020: up by +130 basis points to an actual of +5.3%
Q2E 2020: down by -30 basis points to +3.7%
Q3E 2020: down by -10 basis points to +2.9%
Q4E 2020: stays at +2.5%
Full-year 2020E: up by +20 basis points to +3.6%
Full-year 2021E: up by +40 basis points to +3.0%

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12:00 AM

PZZA Our Meeting with Management in Louisville 2

We recently met with Papa John’s (PZZA; Buy) — including (1) President and CEO Rob Lynch, (2) CFO Joe Smith, and (3) VP Strategic Planning Steve Coke — in Louisville, Kentucky. We thank them for their time! Topics of interest that were asked about include culinary innovation, relations with franchisees, and why Mr. Lynch decided to leave his prior employer to become Papa John’s CEO. We maintain our Buy rating on PZZA, and note the following:

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12:00 AM

PZZA (Post-Call) A Welcome Return to Positive Comps December 18th Field Trip

Earlier today, Papa John’s (PZZA; Buy) reported Q3 adjusted EPS of $0.21, short of our $0.23 forecast and sell-side consensus (according to Consensus Metrix) of $0.22. The company’s full-year 2019 adjusted EPS target range stays at $1.00-$1.20. We keep our Q4E EPS projection unchanged at $0.35. Given that Q3 missed our EPS estimate by two cents, this brings down our full-year 2019E EPS forecast by two cents, to $1.15. Please note that as of this writing, sell-side consensus is at $1.13. (Our full-year 2020E and 2021E EPS estimates remain unchanged at $1.55 and $1.75, respectively.)

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12:00 AM

PZZA Updating Our Rating on Papa John’s Given CEO Switch

Earlier today, Papa John’s (PZZA) announced a CEO change, bringing in Rob Lynch — most recently President at privately-held Arby’s Restaurant Group — to be the new CEO. We upgrade the shares of PZZA to Buy (from Neutral) based on this switch, as we expect Mr. Lynch to be a catalyst for a greater pace of change at the company.

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12:00 AM

PZZA (Post-Call) Shaq May be a Hero, But He Favors Papadias

After today’s (Tuesday’s) market close, Papa John’s (PZZA; Neutral) reported adjusted Q2 EPS of $0.28, below our $0.29 EPS estimate and sell-side consensus (according to Consensus Metrix) of $0.31. A shift in the timing of an operations conference hampered G&A by about $2 million in Q2 from a year-over-year perspective, but should help Q3 year-over-year. We calculate that this is roughly a $0.04-$0.05 amount from an EPS standpoint.

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12:00 AM

Correlating Grubhub Data and U.S. Restaurant Sectors Same-Store Sales Trends

With third-party delivery aggregators continuing to grow, providing additional convenience to the consumer, we decided to look at various quarterly data provided by Grubhub (GRUB; Not Rated), correlating these data sets with various sectors’ same-store sales (for U.S. chain restaurants). To do this, we used six different Kalinowski Restaurant Industry Index sector indices, which are sorted by brand type and based on the weighted-average components from 48 different publiclytraded restaurant concepts. (The weightings are based on each concept’s 2018 U.S. systemwide sales, as measured by Technomic.)

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12:00 AM

PZZA Updating Our Rating on Papa John’s to…

Sometimes fighting the trend is futile, and perhaps this is one of those times — we downgrade the shares of Papa John’s (PZZA) today to Neutral (from Buy), cutting our losses. While we still believe that the Papa John’s brand will be turned around in the long run, near-term risks have noticeably increased from where we sit, and the downgrade is warranted based on: (1) the possibility that founder John Schnatter could seek to sell more of his 19% holding in PZZA once his lock-up expires on August 19th, (2) the possibility that Papa John’s may seek to take on additional debt to fund part/all of the $80 million worth of additional investments announced less than a week ago (thus potentially leading to higher interest expenses; we take down our 2020E EPS estimate by $0.10 to $1.60, placing us $0.08 below sell-side consensus according to Consensus Metrix), and (3) the possibility that the recent $80 million investment announcement may hint at greater franchisee financial difficulties than we had previously been presuming. Even taking into account the stock’s decline over the last few business days, with some additional selling pressure possible starting in mid-August should Mr. Schnatter decide to sell more of his what used to be a 31% stake in PZZA, it appears best to be on the sidelines for now. We note the following:

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12:00 AM

PZZA 2019 Franchise Disclosure Document Review for Papa John’s

Not too long ago, Papa John’s (PZZA; Buy) filed its Franchise Disclosure Document (FDD) for 2019. In this report, we cite some of the highlights from that document following our review of it, including our review of it in comparison to last year’s Franchise Disclosure Document. For example, we would note that the On-Line Transaction Fee for 2019 is “1.75% of Net Sales via Internet on-line ordering,” as compared to the 2018 FDD which shows that fee as “1.5% of Net Sales via Internet online ordering” at that time. Also, the 2019 FDD shows that — for company-owned restaurants only — food costs represented 29.7% of sales, while labor costs/taxes represented another 21.6% of sales. The average pre-tax cash flow for a companyowned restaurant in 2018 was $131,859, or 12.3% of sales. We maintain our Buy rating on PZZA and note the following:

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12:00 AM

PZZA Our Meeting with Management in Louisville

We recently met with Papa John’s (PZZA; Buy) — including President & CEO Steve Ritchie, Executive Vice President & Chief Operating and Growth Officer Michael R. Nettles, Senior Vice President & CFO Joseph H. Smith, and Vice President of Investor Relations & Strategy Steve Coke — in Louisville, Kentucky. We thank them for their time! Topics of interest that we asked about include new brand ambassador (as well as board member and franchisee) Shaquille O’Neal (a.k.a. Shaq), franchisee financial health, and delivery aggregators. We maintain our Buy rating on PZZA, and note the following:

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12:00 AM

PZZA Every Long Journey Begins with the First Steps

After Tuesday’s market close, Papa John’s (PZZA; Buy) reported adjusted Q1 EPS of $0.31, surpassing our $0.24 estimate and sell-side consensus (according to Consensus Metrix) of $0.24. We attribute the earnings outperformance primarily to better-than-expected Domestic Company-Owned Restaurant Expenses/Domestic Company-Owned Restaurant Sales (33.4% actual vs. 35.5% projected).

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12:00 AM
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