Papa John’s CEO talks about expansion plans after strong quarterly results

Papa John’s International Inc (NASDAQ: PZZA) reported better than expected results for its fiscal second quarter on Thursday. Shares of the company are about 2% up today.

Highlights from CEO Lynch’s interview with CNBC’s “The Exchange”

After setting up a new headquarters in London last year, Papa John’s expanded its partnership with Drake Food Service International in Q2 that will see 220 new Papa John’s locations by 2025, including over 170 new restaurants in Spain, Portugal, and Latin America. Commenting on the expansion plan, CEO Rob Lynch said on CNBC’s “The Exchange”:

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We are in about 50 countries versus our competitors in about 100. Even in the international markets that we’re in, we are under-penetrated. Domestically as well, we have 3,400 restaurants relative to our peer group, which has closer to 6,000. So, we see a lot of opportunity for us to go out and build.

According to the chief executive, a significant improvement in unit economics over the past two years have helped franchisees accumulate sufficient capital that they are interested in reinvesting into the business, which will further translate to growth and expansion for the business.

Lynch acknowledged that the labour market had tightened in the past six months, but Papa John’s partnership with the delivery aggregators, he said, had been helping in alleviating the situation. The pizza chain also resorted to bonuses and benefits to become an “employer of choice”. Talking about the supply chain constraints, the CEO said:

We’ve seen some inflation come into the P&L, particularly in the paper for the cardboard boxes that our pizza ships in. It has put some cost pressure in. But we have been able to mitigate that through delivering innovation that allows our customers to self-select into more premium items, which drive some check benefits for us. That’s mitigated some of the commodity inflation, and our P&L is in a really good shape.

Second-quarter financial performance and annual dividend

Papa John’s concluded the quarter with $79.9 million in net loss ($2.30 per share) versus the year-ago figure of $15.7 million of net income (48 cents per share). On an adjusted basis, it earned 93 cents per share.

The pizza restaurant franchise generated $515 million of revenue – an increase from 460.6 million last year. According to FactSet, experts had forecast $494 million of revenue and 74 cents of EPS.

Comparable sales jumped 5.2% and 21.2% in North America and internationally, respectively, to beat FactSet consensus. The board declared $1.40 per share of an annual dividend that represents a 55.6% increase.