Papa John’s achieved some of the lowest closure rates in several years in Q2 and Q3, but in Q4, shutterings picked up slightly with 22 in North America and 36 internationally. However, CFO Ann Gugino explained this was an effort to close unprofitable locations.
“We believe this has created a more profitable foundation going into 2021, freeing up capital and management focus for us and our franchisees to develop new, profitable opportunities,” she said.
Lynch said Papa John’s built development infrastructure to the point where the brand is able to assist franchisees throughout the entire process. Before Lynch’s tenure, the chain didn’t have a real estate team, advanced mapping capabilities to highlight new trade opportunities, or sophisticated design and construction abilities. All of it was built in the last year.
The CEO said the chain is ready to deploy each of those measures against franchisees who have “more cash than they’ve ever really had.” Franchisees, who previously thought they couldn’t increase their footprint, are now asking the chain to come into their market and leverage the data-driven tools to identify how much they can grow.
“Markets that were historically thought to be completely built out and developed have significant opportunity,” Lynch said. “We obviously have big white space in places like California and out West where we’re less developed, but we are identifying development opportunities really in every market across the country.”
The growth is balanced between existing and new franchisees, he added. Lynch said not many current operators are willing to sell, so the brand is exploring whitespace opportunities to bring in new partners where it makes sense.
Papa John’s is also planning to increase its company footprint, which Gugino said are a “seed for franchise development activity in new markets or for investors who want to begin with a turnkey operation in which to build.”
Although he didn’t disclose specifics, Lynch said Papa John’s is working on refranchising deals with current and potential operators. However, the challenge is that these stores are profitable. A year and a half ago when Papa John’s discussed refranchising as part of development, the economics were different around the company-run stores, he said.
“Trading company-owned restaurants for loyalty streams seemed like a really easy decision to make,” Lynch said. “At this point, because of the margin enhancements, because of flow through, because of the AUVs, it’s become a little bit of a different math equation. We are working with franchisees. It’s going to take a lot of development for us to part with our restaurants.”
For the full year, revenue lifted 12 percent to $1.8 billion. Operating income increased from $24.5 million to $90.2 million and net income rose from $4.9 million to $57.9 million.