QUOTE AND NEWS
DailyFinance  Aug 29  Comment 
Papa John’s International, Inc. (NASDAQ: PZZA), the official pizza sponsor of the National Football League and Super Bowl XLIX, is a ritual for parking lot tailgates and armchair quarterbacks. When the NFL kicks off its...
SeekingAlpha  Aug 28  Comment 
By Andrew Sachais: The range of issues plaguing Papa John's (NASDAQ:PZZA) ingredients this year have led investors to sell the company's stock. The most recent concern the pizza maker faces with ingredients is the closure of one of the company's...
SeekingAlpha  Aug 17  Comment 
By Asean Century: Papa John's International (NASDAQ:PZZA) reported EPS of $0.40 in Q2. This was two cents below what the market was expecting. Revenues came in weaker than expected as well at $380.9 million. This was $990k below expectations, but...
Benzinga  Aug 8  Comment 
Below are the top specialty eateries stocks on the NYSE and the NASDAQ in terms of earnings per share. The trailing-twelve-month earnings per share at Panera Bread Company (NASDAQ: PNRA) is $6.73. Panera Bread's PEG ratio is 1.42. The...
SeekingAlpha  Aug 6  Comment 
Papa John’s International, Inc. (NASDAQ:PZZA) Q2 2014 Earnings Conference Call August 6, 2014 10:00 AM ET Executives Lance F. Tucker – Chief Financial Officer, Chief Administrative Officer Senior Vice President and Treasurer John...
Motley Fool  Aug 6  Comment 
The pizza delivery giant just posted solid second-quarter earnings results.
SeekingAlpha  Aug 4  Comment 
By WestEnd511: Papa John's (NASDAQ:PZZA) and Wendy's (NASDAQ:WEN) both will report earnings next week. Consensus expects PZZA to earn $0.42 (+7.7% y/y) on $382m (+9.4% y/y) in revenue. As for WEN, consensus expects $0.10 in EPS (+25% y/y) on $518m...
MarketWatch  Aug 1  Comment 
A Papa John's International Inc. restaurant in the eastern China city of Nanjing has closed after it was found using expired dough, according to a state-media report earlier this week. While health officials have launched an investigation into...
DailyFinance  Jul 28  Comment 
While families are in the midst of their annual vacations or spending their day at the pool or beach, Papa John’s is celebrating a favorite summer tradition, the backyard barbecue, with its new Spicy Pulled Pork pizza. ...




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Papa John's International is the world's third largest pizza delivery company after Domino's and Pizza Hutt. Known for its high-quality pizza and use of fresh ingredients, Papa John's has 3,208 locations in 50 states and 28 countries.[1]. In FY 2007, the company generated $1B in revenue and $52M in operating income[2]. Today, Papa John's is navigating a difficult operating environment. Rising food and energy prices[3], the housing slump[4] and a weakening job market[5] are taking a toll on restaurant spending [6] in its core domestic market. At the same time, rising prices for key inputs like wheat and cheese as well as oil and fuel are putting negative pressure on the company's margins. So far, Papa John's has successfully dealt with these challenges with a continued focus on international growth, marketing and product innovation. Papa John's was the only national pizza company to report positive domestic comparable sales in 2007 with a .4% increase[7].

Business Overview

Papa John's was founded in 1984 when "Papa" John Schnatter knocked out a broom closet in the back of his father's tavern and sold his car to begin selling pizzas to the tavern's customers. From its humble beginnings in Jeffersonville, Indiana, Papa John's has expanded to over 3,000 worldwide locations but maintains its commitment to superior-quality pizza and timely delivery to your doorstep. Papa John's has five reportable segments including domestic restaurants, domestic franchising, domestic commissaries (Quality Control Centers), international operations and variable interest entities.

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Domestic Restaurants

Papa John's 648 domestic company-owned stores produced approximately 47% of the company's revenue in fiscal 2007[8]. In its company-owned stores, Papa John's generates revenue from the retail sales of pizza and other food and beverage products. Company-owned stores averaged $836,000 in annual sales in 2007[9]. In order to increase average annual sales, Papa John's clusters its restaurants in targeted markets in order to take advantage of operational, distribution and advertising efficiencies.

Domestic Franchise

In addition to 648 company-owned stores, there are 2,112 franchised restaurants in the U.S[10]. Under the franchise system, a franchisee, usually a local entrepreneur, requests permission from the company in order to open a Papa John's location. The company's franchising agreement requires the franchisee to provide the initial capital for equipment, signs, seating and decorations. Meanwhile, the company owns or obtains long-term leases for the building of the restaurant and the land. These franchises generate revenue for the company through payment of rent, royalties based on sales, and initial fees. Of the total 2,760 domestic locations, 23.5% were company-owned. Through a combination of net openings more heavily weighted toward franchise units and selective refranchising, Papa John's hopes to decrease its percentage of company-owned stores to below 20% over the next few years[11].

Commissary Sales

Papa John's also maintains large "Quality Control Centers" that sell food and supplies to company-owned and franchised stores. These QC Centers take advantage of volume purchasing of food and supplies and provides consistency and efficiencies of scale in fresh dough production. Through the vertical integration of its food supply chain Papa John's can leverage the vast purchasing power of company-owned and franchised stores to lower costs.

International Operations

With the exception of eight company-owned Chinese stores and six company-owned U.K. locations, Papa John's franchises all of its international locations which totaled 434 restaurants in 2007. Papa John's top international locations are the U.K. (88), China (69) and Korea (64).

Trends & Forces

Rising Food and Energy Costs Shrink Margins

  • Rising Food Costs: Papa John's margins are dependent on food prices. In particular, the company is dependent on the price wheat (used to make dough) and cheese, two key ingredients of any pizza. Over the past few quarters the prices of these key inputs have risen significantly; in February 2008 a bushel of wheat cost $11.21 compared to $4.35 a year earlier[12]. The company is also impacted by the price of corn, beef, poultry, other important ingredients for much of its menu.
  • Rising Energy Costs: Papa John's is also affected by the price of oil which has risen four-fold since 2001 with the price of gas rising more than two-thirds since last year alone.[13] Oil is used to produce food, as well as to transport it all over the world. More importantly, the company consumes large quantities of gas delivering its pizzas to the homes of its customers. Furthermore, Papa John's relies on diesel to fuel the delivery fleet of its domestic supply chain. Intense competition in the pizza delivery category limits the company's ability to pass rising food and energy costs onto customers; because of this, increased costs shrink margins and hurt profitability.

U.S. Consumer Slowdown Hampering Performance

Papa John's same-store sales
Period 2005 2006 2007
Company-owned Stores 7.4%[14] 3.6% [15] 0.5%[16]
Franchise Stores 4.3% [17] 2.9% [18] 0.3%[19]


References

  1. Papa John's 2007 10-K Item 1. Business General
  2. WSJ.com Papa John's Annual Income Statement
  3. The Boston Globe- Surging costs of groceries hit home
  4. Bloomberg Case-Shiller Index Falls
  5. NYTimes Unemployment Rising
  6. Bitter taste: Food costs, less consumer spending hurting restaurants
  7. Papa John's 2007 10-K Letter to Shareholders
  8. Papa John's 2007 10-K Item 7. Management's Discussion
  9. Papa John's 2007 10-K Item 7. Management's Discussion
  10. Papa John's 2007 10-K Item 2. Properties
  11. Papa John's 2007 10-K Item 1. Business- General
  12. The Boston Globe- Surging costs of groceries hit home
  13. 'Most Worrisome Consumer Trends' http://www.bloggingstocks.com/2007/11/30/best-and-worst-of-2007-most-worrisome-consumer-trends/
  14. Papa John's- Investor Relations, Comparable Sales
  15. Papa John's- Investor Relations, Comparable Sales
  16. Papa John's- Investor Relations, Comparable Sales
  17. Papa John's- Investor Relations, Comparable Sales
  18. Papa John's- Investor Relations, Comparable Sales
  19. Papa John's- Investor Relations, Comparable Sales
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