Papa John's Q2 Earnings: What To Look Out For

Papa John’s (NASDAQ:PZZA) will be reporting their Q2 earnings Tuesday after the closing bell. The company is up 8.4% year-to-date, significantly underperforming the broader food and restaurants market. Papa John’s is looking to turn things around with a strong Q2 report. In Q1, the company beat our revenue and earnings estimates but growth declined year over year, hindering the company’s return over the last 12 weeks. Will the company bounce back in Q2? Let’s take a further look at how Zacks expects PZZA to perform in Q2.

Overview and Q1 Performance

The company is headquartered in Louisville, Kentucky, and began its operations in 1984. Papa John’s operates and franchises pizza delivery and carryout restaurants in the United States and other select international markets. At the end of fiscal 2018, there were 5,303 Papa John’s restaurants operating in all 50 states and 46 countries and territories around the world. 645 of these restaurants were company-owned while the remaining 4,658 were franchised restaurants. In May of 2018, the company faced scrutiny after its ex-CEO John Schnatter was accused of using a racial slur, resulting in his resignation in March 2019. Since the incident, the company has been ramping up efforts to draw customers back and turn around their image.

In Q1, Papa John’s reported earnings of $0.31 per share beating our estimate by 47.62% while its top-line of $398.4 million beat our revenue estimate by 6.5%. Despite these beats, the company’s top and bottom line dropped 11.5% and 40.4%, respectively, from the prior-year period. Domestic company owned restaurants fell 14.9% to $161.8 million while North America franchising dropped 29.3% to $17.53 million. Domestic commissaries generated $148.9 million and international revenues totaled $25.67 million, falling 7.92% and 14.8% respectively. Other revenues brought in $44.5 million, gaining 2.9% from Q1 2019. Papa John’s added 33 restaurants in Q1 bringing their operating total to 5,336.

Q2 Outlook

Consensus estimates are projecting for Papa John’s to continue its year over year decline in Q2. The bottom-line is forecasted to plummet 55.1% and top-line is projected to fall 2.47% to $397.87 million. Key Company Metric estimates are predicting for domestic company owned restaurants to fall 11.1% to $161.2 million and for North American franchising to generate $18.2 million, falling 23.8%. Domestic commissaries are expected to report $142.1 million and international revenue is expected to total $26.35 million for a decline of 7.4% and 9.36% respectively. In addition, Papa John’s is expected to add 35 restaurants in Q2 which would bring them to 5,371.

Papa John’s has failed to beat estimates in five out of the last six quarters, suffering a slump since the incident involving its ex-CEO. Earnings are expected to be impacted by lower operating results primarily due to pressure on domestic restaurant sales and higher costs from technology and marketing.

While the company is still trying to recover its public image, the company still remains a legitimate competitor against rivals such as Domino’s (NYSE:DPZ) . Papa John’s is investing heavily in technology initiatives like digital ordering to boost its total sales. The company is big on brand awareness as well, becoming the first pizza delivery chain to announce the removal of preservatives.

If the company can successfully expand internationally and resuscitate lagging consumer sentiment, it can see bottom and top-line improvements, but the time frame for that remains to be determined. Papa John’s is a Zacks Rank #3 (Hold) with a Style Score of B in Growth and Momentum.

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