Papa John’s president and chief operating officer Steve Ritchie admitted that the pizza chain came out of the gate “a little softer” than planned in the first quarter, but as some competitors are proving, that’s still not a bad place to be.
Papa John’s reported system-wide comparable sales increases of 2 percent in North America and 6 percent international year-over-year on Tuesday. First-quarter earnings per diluted share were 77 cents compared to 69 cents in 2016, a jump of 11.6 percent.
“We continue to perform well in a challenging environment and expect 2017 to be another good year of growth for Papa John's global brand. Our continued success comes from our strong fundamentals as we continue to build upon our commitment of better ingredients, better pizza, and having the cleanest level among national pizza brands,” CEO and chairman John Schnatter said in a conference call Wednesday morning.
Papa John’s relatively meager sales growth was in the green at least, which is more than Pizza Hut could say. The YUM! Brands chain reported a 7 percent decrease in the first quarter during the company’s earnings release Wednesday. Meanwhile, Domino’s blew past expectations with a 10.2 percent increase.
Papa John’s also announced that it closed 30 stores domestically. Nearly 70 percent of those, Ritchie said, are “in a couple of concentrated markets where we still have under penetration in terms of number of units. The [average unit volumes] in those markets is still rather low and we’ve also had some more significant wage pressure in those markets in addition to the occupancy cost being higher in those individual markets.”
Papa John’s opened 17 stores in North America in the quarter and 38 internationally. In the trailing four quarters, Papa John’s has added 179 net worldwide units. There are around 1,300 units in the pipeline (1,100 internationally), the majority of which are scheduled to open in the next six years. Papa John’s has 5,082 units systemwide as of March 26.
“We certainly don’t think that we’ll see that kind of a trend on the full-year and I’ll just keep going back to the full-year guidance and we incorporate a lot of this thinking into our development goals in the 4 to 5 percent,” Ritchie said of the closures.
Papa John’s digital business is doing just fine as well. The chain, which launched Papa Track in March, said digital sales exceeded 60 percent in the first quarter.
“The digital is the future of this business. One of the negatives on the execution part of running a Papa John’s restaurant happens to be answering the phones,” Schnatter said. “I think in two or three years the digital will be 75—80 percent of our orders.”
Ritchie said ticket averages are higher for online than offline customers, a trend Papa John’s expects to continue, as well as improved frequency and customer experience.
The ticket average is even higher with Papa John’s loyalty program.
Papa John’s is also in the process of innovating its menu yet agin. It tested organic toppings and introduced a gluten-free crust.
Another driving factor for Papa John’s is its connection to sports organizations. In February, the chain was named the official pizza partner of the NHRA. Of course, there’s the connection to the NFL as well.
“We have got a tremendous opportunity to leverage unique meal experiences if you are watching NFL games and we are have a deep integrated sponsorship with NFL,” said Mike Nettles, SVP, chief information and digital officer. “We can tie that into half time promotions make sure that the customers are well aware that they are hungry they are thinking of snacks for their parties they are able to get those quickly. We present them to them as opportunities ahead of the game so they are not actually waiting on it.”
This impact turns both ways. “There was decline in the overall ratings with the NFL,” Ritchie said. “[This is] what we talked about little bit in the first quarter. We do still spend a significant amount of our media investments in television and a significant portion of that television media investment is in the NFL. So when the ratings are down that impacts a little bit of our reach on that side as we think about the 2017 season. In fact, the folks with the NFL were in just a couple of short weeks ago and they’re very optimistic about their plans for the 2017 season and how we’re going to integrate into the NFL and take advantage of those opportunities.”