Looking ahead to growth
Papa Johns has turned in 12 consecutive quarters of positive comparable sales in North America. Weekly per-store average sales across every market are higher today than pre-COVID, Lynch said. Total revenues in Q2 lifted 1.5 percent to $522.7 million, year-over-year. Global systemwide sales were $1.2 billion, a 2.6 percent uptick over Q2 2021.
Returning to the topic of efficiency and systems, Lynch said Papa Johns’ efforts over the past few years to build strong partnerships with each of the nationwide third-party delivery aggregators “continues to be a strategic differentiator for us.” It’s something Domino’s hinted could be in the cards, but has not yet arrived. Pizza Hut in Q2 said 55 percent of its locations were now using third-party delivery as a service and 70 percent of domestic units could be found on at least one aggregator platform.
It’s a shift rooted in what’s become an increasingly challenging arena to find delivery drivers.
“We are dedicated to meeting our customers where they are, and these partnerships provide us with a new opportunity for consumers to discover our brand through an incremental sales channel and an ability to leverage their incremental delivery capabilities, particularly at peak times,” Lynch said.
Additionally, Papa Johns introduced centralized call centers and tackled efficiencies through equipment innovation. It’s currently working to build new labor optimization tools as well, Lynch noted.
In terms of growth, the brand opened 47 net new units in Q2 and plans to bring 280–320 to market for the full year. Lynch said Papa Johns has development agreements in place with “nearly all” of its top 25 North America franchisees. In 2019, that number was just three. The multi-calendar aim remains to grow global net units by 6–8 percent annual for fiscal 2023–2025.
That roughly amounts to 1,400–1,800 net new Papa Johns by year-end 2025.
It’s a massive flip from the chain’s lead-up to the pandemic, when it was still battling out of a PR hole created by an ugly separation from founder and former executive John Schnatter. In 2019, Papa Johns opened 79 North America locations and closed 128. The following calendar, it debuted 64 and shuttered 63. Last year, there were 85 openings versus 35 closures.
A consumer change Lynch brought up as well is something that’s surfaced of late for other brands, like Texas Roadhouse. Seasonality has rejoined the picture. The overall quick-serve category, typically, is relatively resistant to summer travel. Customers go on vacation and pull of highways to stop at drive-thrus. But it does tend to hit pizza delivery brands and casual chains since they’re dinner destinations.
“The last two years that's been muted,” Lynch said. “The last two years as people haven't gone on vacation as readily as people haven't enjoyed international travel. We haven't seen that seasonality. This year, we absolutely are seeing it.”
Papa Johns was tracking “even higher” on comps coming into June and the brand was bullish on its ability to exceed expectations, “ours and everyone else’s,” Lynch said.
And then it slowed in June. In travel markets, like Florida, business shot up. It’s leading Lynch to forecast a similar cadence to pre-COVID days—the prediction business will accelerate this fall when people return to school and traditional schedules.
Lynch also mentioned staffing has picked up. The company isn’t fully there (or anywhere close, admitted), “but it's definitely moving in the right direction” compared to COVID drops and especially early 2022, when Omicron dented progress.
This was reflected industrywide from federal data released Friday. Food services and drinking places tacked on 74,100 jobs in July and now employ 11.7 million people. It’s still about 600,000 short of pre-virus levels.
Average hourly earnings declined by 0.16 percent, which marked the first slide since May 2020. Still, the figure is over 8 percent higher, year-over-year.
“We've seen our recruiting and retention levels improve, which gives us a lot of a lot of excitement,” Lynch said. “However, as Ann mentioned, our labor costs have gone up both as a function of wage inflation, which we do expect to normalize to a certain extent moving forward, but also as a function of some of our behavior over the last two years of just every hour, put every hour we can in the restaurant.”