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Edited Transcript of PZZA earnings conference call or presentation 26-Feb-19 10:00pm GMT

Q4 2018 Papa John's International Inc Earnings Call

LOUISVILLE Mar 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Papa John's International Inc earnings conference call or presentation Tuesday, February 26, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph H. Smith

Papa John's International, Inc. - Senior VP & CFO

* Michael R. Nettles

Papa John's International, Inc. - Executive VP and Chief Operating & Growth Officer

* Steve M. Ritchie

Papa John's International, Inc. - President, CEO & Director

* Steven R. Coke

Papa John's International, Inc. - VP of IR & Strategy

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Conference Call Participants

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* Alexander Russell Slagle

Jefferies LLC, Research Division - Equity Analyst

* Alton Kemp Stump

Longbow Research LLC - Senior Research Analyst

* Christopher Thomas O'Cull

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst

* Frederick Charles Wightman

Citigroup Inc, Research Division - Assistant VP & Analyst

* Peter Mokhlis Saleh

BTIG, LLC, Research Division - MD and Senior Restaurant Analyst

* William Everett Slabaugh

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to Papa John's Fourth Quarter 2018 Conference Call and Webcast. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Steve Coke, Vice President of Investor Relations and Strategy. You may begin.

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Steven R. Coke, Papa John's International, Inc. - VP of IR & Strategy [2]

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Thank you, Victor. Good afternoon. Joining me on the call today are President and CEO, Steve Ritchie; our CFO, Joe Smith; and Mike Nettles, our Chief Operating and Growth Officer. Steve and Joe will have comments about our business and provide a financial update. After the prepared remarks, Steve, Joe and Mike will be available for Q&A.

Our discussion today will contain forward-looking statements involving risks that could cause actual results to differ materially from these statements. Forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our SEC filings. Please refer to our earnings release in the Investor Relations section of our website for a reconciliation of non-GAAP financial measures discussed on this call. Finally, we ask any members of the media to be in a listen-only mode.

Now I'd like to turn the call over to Steve Ritchie for his comments. Steve?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [3]

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Thank you, Steve, and good afternoon, everyone. As you saw, the fourth quarter and full year results reported today are consistent with the preliminary results we announced earlier this month. Overall, North America comps were down 8.1% for the fourth quarter and were down 7.3% for the full year. International comps decreased 2.6% for the fourth quarter and were down 1.6% for the year. The North America results are disappointing to all of us and continue to reflect the consumer sentiment challenges our brand has experienced in the U.S. In addition, sales were impacted by the conversions of the company's new loyalty program and ineffective promotions. Our creative and value offerings have not resonated with consumers in a heightened competitive environment.

Despite these difficulties, we remain confident in the long-term potential of Papa John's. Our confidence is supported by 3 factors: First, we have a differentiated brand. Papa John's is the quality leader in the pizza category. In our case, better ingredients do mean better pizza, and we think quality will be an attribute that consumers continue to value. Secondly, we have new partners who bring additional expertise and financial resources to help us capitalize on this differentiated market position. As previously reported, Starboard made a $200 million convertible preferred stock investment in the company in early February. Starboard and our new directors, Jeff Smith and Anthony Sanfilippo, have accomplished significant turnarounds and value creation at other companies in the restaurant, retail and consumer industries. Already, Jeff has been actively engaged as our new Chairman as we evaluate and adjust our plans and strategies for 2019. He is also helping us stay focused on the value drivers of Papa John's, namely quality pizza and building strong consumer connections. The third factor supporting my confidence in Papa John's is the commitment of our team and their continued enthusiasm for our company, even with the significant amount of work that lies ahead. We know we must improve how we communicate with and connect with our customers. It is not just about spending more on advertising and promotions. We need to do a better job of showcasing our quality as a real product differentiator while making it easier for our customers to purchase our pizza whenever, wherever and however they want.

In connection with the Starboard agreement, we have begun to examine investment opportunities within our strategic pillars to reinforce our Better Ingredients. Better Pizza market position and reinvigorate performance. We are in the early stages of this evaluation and do not have specific details to share today.

However, we are making progress within our strategic pillars, and this progress is important to the long-term success of the company. Let me spend a few moments updating you on our work in these areas. First, making people a priority. Over the past months, we have launched a number of initiatives to communicate the importance of people to Papa John's and to begin transforming our culture in a positive way. As part of this, we engaged outside experts to conduct a cultural audit and provide recommendations on actions we needed to take to ensure our commitment to diversity, equity and inclusion is represented throughout the company. The audit is now complete, and we have already begun to implement several of the recommendations. As an example of the steps we have taken, we recently completed the diversity, equity and inclusion training for our corporate office team members that I mentioned on last quarter's call. We had nearly 100% participation rate for the 7-hour workshop, and employees rated the experience 4.5 out of 5. We are now rolling the workshops out to our field team, and the program is available to our franchisees at no cost to them.

In January, we hired our first Chief People Officer, Marvin Boakye. Marvin has more than 20 years of human resource experience as well as expertise in change management and cultural transformation. He is leading the implementation of our talent management strategy, which includes overseeing people operations, compensation and benefits and learning and development.

As a clear marker for our commitment to employees and their development, we recently announced a higher-education benefit program with Purdue University Global. The program covers 100% of tuition cost of undergraduate and graduate online degree programs for Papa John's 20,000 corporate team members and offers significantly reduced tuition to franchise employees. The program allows participating employees to expand their skill set, build leadership and management expertise and prepare to advance their careers. This is a first-of-its-kind benefit in the quick service restaurant industry and one, we believe, will help improve employee retention, especially at the restaurant level, and will differentiate Papa John's as employer of choice in the competitive employment environment.

Turning now to the work we are doing to improve Papa John's brand differentiation. We firmly believe that our ingredients are what differentiate Papa John's from our competitors. However, our creative has continued to underplay this attribute with the focus on limited time products, loyalty and promotions. As a result, our brand has not been breaking through the significant marketing dollars that our competitors are spending. Next month, we will be launching TV and digital campaigns that show Papa John's leaning into the story of our products and ingredients and doing it in a way that is relevant to millennial and Gen Z consumers. We want to ensure the new generation of pizza consumers understand the quality foundation of our brand so that we can attract new customers.

Better Ingredients. Better Pizza is our brand equity. As a part of this brand differentiation work, we will offer specialty pizzas that are unique in the market. For example, in February, we featured the Philly Cheesesteak Pizza. This has been a fan favorite in the past, and we are excited to bring it back to our lineup. in March, we will introduce permanent menu additions with 6 handcrafted specialty pizzas, including the Ultimate Pepperoni, Meatball Pepperoni, Philly Cheesesteak, Fiery Buffalo Chicken, Zesty Italian Trio and the Super Hawaiian. And later this year, we will introduce a new hot and honey chicken and waffle pizza, which was the winner of our pick our next specialty pizza contest that ran in February.

As you know, creating accessible value has also been a focus area for us. Let me update you on our work in this area. Late in the fourth quarter, we relaunched our Papa Rewards loyalty program. The surge in migration to the new program, combined with a free cheese stick introductory offer, put unexpected temporary pressure on the average ticket per order. However, we believe the transition to the new rewards program is important because of the value and variety it provides our customers and the consumer insights we gain. In particular, we now have the data that allows us to engage in one-to-one marketing with our customers and by segment, which enables us to drive traffic without relying on blanket discounts across all channels. For example, we executed a successful rewards-only promotion that offered free pizza to the members who spent $20 during Super Bowl week. These targeted offerings and other exclusive perks that are tailored to the customer also build brand loyalty. Over time, we believe the new Papa Rewards program will be a positive contributor to our performance and our brand differentiation.

Also during the fourth quarter, we began developing additional everyday value offerings that we are now testing in select markets. For example, we know that certain segments of our business are heavily carryout, and we are now testing offerings that speak to those customers. We'll be examining the results from these tests and making further adjustments or expansions in the coming quarter as we determine the offerings that best reach the value consumer.

Turning to technology, our fourth strategic pillar. As we've previously discussed, Mike Nettles and his team have elevated the consumer experience across our digital and mobile platforms and have expanded the ways customers can order Papa John's. Our mobile channels now represent around 3/4 of digital sales. On our website, we deployed mobile-first design improvement and intelligent chat technology to better engage our customers. On our mobile apps, which have seen significant growth, we've integrated Apple Pay and Google Pay, enabled more targeted messaging and made a number of enhancements to simplify the user experience and advance our loyalty program. In addition, ordering is now available on Apple TV, Amazon Alexa and through DoorDash, which currently serves more than 1,300 restaurants and will increase further in the coming months. These channels are enabled by APIs that allow us to launch future partnerships with unprecedented speed and cost efficiency. We're examining the potential for further improvements in our technology, including new app capabilities, innovative partnerships and additional ways to enhance the delivery experience for our drivers and our customers. Pizza brings people together, and we want our digital and social capabilities to fully reflect this mission.

And now to our work related to unit economics. We have continued our work with the third-party efficiency experts and food aggregators to drive both revenue and efficiencies in our restaurant-level operations. Specifically, we have identified procedures to improve food cost controls, and we have made enhancements to our labor management system that better align labor goals with individual restaurant characteristics. In addition, we maintain our commitment to supporting the long-term financial health of our franchisees. We are continuing to provide royalty relief for all domestic traditional restaurants for the first quarter of 2019. Furthermore, we are extending the high level of support to franchisees in higher-cost markets on both coasts of the U.S. We believe these efforts, coupled with our review of additional technology solutions that we are currently evaluating for our restaurants, will provide opportunities to improve unit economics in 2019.

Over the past several weeks, I have spent a significant amount of time with our company store operations team to identify and address operational improvements that are needed. Our team has accepted the challenge of improving sales and operations to set the pace for the North America system. We will continue to evaluate our company store performance by market to ensure that we are maximizing long-term value.

Before turning the call over to Joe, I'd like to provide an update on International. Our International business continues to grow sales and restaurant unit counts at a double-digit pace as both increased 11% during the quarter. For the year, we opened 304 International restaurants, which was a record-breaking performance for our brand. Our robust expansion continues as we just opened our first restaurant in Pakistan and have now entered 12 new countries since 2016. We are now in 47 countries and territories around the globe, and we're getting very close to opening International restaurant number 2,000.

We are pleased that our organizational changes made during 2018 are fostering improved performance. While comp sales were still not where we wanted them to be for the quarter, we did see marked improvement in the U.K. and the Middle East. We continue to see positive signs of a turnaround in both businesses and the International business as a whole as evidenced by the flat January comp sales we previously announced.

In summary, we still have lots of hard work to deliver sustainable growth in the business, and you see that in the guidance we announced today, which Joe will review shortly in detail. However, we are making progress, and our recent investment agreement with Starboard represents a strong vote of confidence in our company and the opportunities ahead. The additional financial resources and the new expertise gains of the agreement better position us to realize these opportunities. We are operating and allocating capital with deeper discipline. We are focused on people and pizza, and our team members and franchisees are enthusiastic about the opportunities ahead.

Now -- let me now turn the call over to Joe to discuss our financial results for the quarter in more detail. Joe?

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Joseph H. Smith, Papa John's International, Inc. - Senior VP & CFO [4]

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Thank you, Steve. For the fourth quarter, we reported a diluted loss per share of $0.44 on a GAAP basis compared to diluted earnings per share of $0.81 in the fourth quarter of 2017. The decline in our earnings per share was primarily attributable to our special charges, which will be described below. In addition, results were impacted by lower North America comparable sales and the impact of other special items in the prior year comparable quarter, including an extra week of operations and the remeasurement of our deferred tax liability resulting from the 2017 Tax Cuts and Jobs Act.

During the fourth quarter, we incurred special charges of $25.9 million. Approximately, $15.5 million of these costs included support to our North America restaurants through short-term royalty reductions for franchisees and a contribution to the National Marketing Fund. In addition, we incurred $8.1 million of costs associated with activities of the Special Committee of the Board of Directors, including legal and advisory costs, culminating in the recent strategic investment by Starboard value. The remainder of the special charges were primarily associated with reimaging costs and other asset write-offs. For the full year, our special charges were $50.7 million.

Excluding these special charges and other special items as detailed in our earnings press release, we reported adjusted diluted earnings per share of $0.15 on a non-GAAP basis compared to $0.54 in the fourth quarter of 2017. Our fourth quarter net loss on a GAAP basis was $13.8 million. Excluding special items, our fourth quarter net income was $4.6 million compared to $18.9 million for the corresponding quarter in 2017. As outlined in the earnings press release, 2018 GAAP EPS was $0.05 as compared to $2.83 for 2017. Excluding special items in both years, our adjusted EPS was $1.34 in 2018 as compared to $2.51 in 2017.

Consolidated fourth quarter revenues, excluding the 53rd week in 2017, decreased $62.7 million or 13.4%, primarily driven by lower comparable sales for North America, which resulted in lower company-owned restaurant revenues, lower royalties and decreased North America commissary sales. In addition, the refranchising of 62 company-owned restaurants in North America earlier in the year reduced total revenues on a quarter and year-to-date basis by approximately $15 million and $42 million, respectively, as compared to the prior year comparable periods. International revenues also decreased due to the refranchising of our company-owned operation in China earlier this year.

Now turning to the business units for the fourth quarter. Domestic company-owned restaurants operating margin decreased $9.3 million or 0.6% as a percentage of related revenues, primarily due to the impact of lower comparable sales and the adoption of the new revenue recognition standards that revised the method of accounting for the customer loyalty program. In addition, the 53rd week of operations in 2017 contributed approximately $2.4 million of the decrease.

North America franchise royalties and fees decreased $9.2 million or 34.1% as compared to the fourth quarter of 2017, primarily due to the $5.5 million of short-term royalty reductions granted to our North America franchisees and further reduced due to negative comparable sales. In addition, the 53rd week of operations in 2017 contributed approximately $2 million of the decrease. North America commissary operating margin decreased $5.5 million or 2.4% as a percentage of related revenues due to the decline in North America restaurant sales and due to the required reporting of $2.6 million in franchise restaurant equipment incentives under the new revenue recognition standards, which was previously included in our G&A expenses. In addition, the 53rd week of operations in 2017 contributed approximately $1.7 million of the decrease for the quarter.

Our International operating margin decreased $2.5 million due to lower new restaurant opening fees and lower revenues from the United Kingdom quality control center due to the required reporting of franchise restaurant equipment incentives under the new revenue recognition standards. In addition, the 53rd week of operations in 2017 contributed approximately $700,000 of the decrease. As a percentage of International revenues, the operating margin increased 0.7%, primarily due to the divestiture of our China operations.

For the fourth quarter, G&A cost increased $20.2 million, primarily due to the previously mentioned special charges. The remainder of the increase was primarily due to higher technology initiative cost and the $1.5 million contribution to the newly formed Papa John's Foundation. These increases were partially offset by the previously mentioned required reporting of franchise restaurant equipment incentives.

Net interest expense increased $3.2 million in the fourth quarter due to an increase in the average outstanding debt, including the impact of share repurchases made through 2018 as well as higher interest rates. At the end of the year, our outstanding debt balance was $625 million. Subsequent to year-end, we have used the Starboard investment proceeds to reduce our revolving line of credit while we execute our disciplined approach to capital allocation and review our opportunities to further invest in the 5 strategic priorities Steve previously discussed.

For the full year, our effective tax rate was 44.9%, which is higher than the 24.1% effective rate for 2017. The increase in the tax rate is primarily due to the impact of lower pretax earnings in 2018 and the required recapture of operating losses associated with the divestiture of our China operation. Our free cash flow, which is a non-GAAP measure that we define as cash flow from operations less capital expenditures, was approximately $30.8 million for the full year as compared to $82.4 million in 2017. This was primarily due to the company's lower net income in 2018.

We paid a cash dividend of $7.1 million or $0.225 per common share during the fourth quarter for a total of $29 million of dividends paid in 2018. The full year dividend was $0.90 per share. Subsequent to the fourth quarter, on January 30, 2019, our Board of Directors declared a first quarter dividend of $0.225 per common share. During 2018, the company repurchased approximately 2.7 million shares of stock for an aggregate cost of approximately $158 million. The company did not purchase any shares after early August.

Turning now to our outlook for 2019. We expect our GAAP EPS to be between 0 and $0.50 for the full year, including anticipated special charges of $30 million to $50 million, which will largely be assistance to the North America franchise system and cost associated with the Special Committee of the Board of Directors. We expect adjusted diluted earnings per share to be between $1 and $1.20, excluding special charges. North America comparable sales are expected to be between negative 1% and negative 5%, while International comparable sales are expected to be flat to positive 3%. We anticipate global growth of 75 to 150 net units. We are also planning to invest between $45 million and $50 million on capital projects in 2019. Our preliminary tax rate in 2019 is expected to be between 21% and 24%. Finally, block cheese prices are projected to be in the low to mid-$1.60 range.

I'll now turn the call back over to Steve Ritchie for his final remarks before we take Q&A. Steve?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [5]

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Thank you, Joe. See, I'm confident Papa John's is positioned for long-term success as we work to better showcase our quality and improve the customer experience. With the additional financial resources and new expertise gained through the partnership with Starboard, we'll be making targeting investments directed to the highest return initiatives across our 5 strategic pillars. We look forward to unveiling additional product, menu, advertising and customer engagement strategies to fortify Papa John's position as the Better Ingredients. Better Pizza company.

As always, we appreciate your continued support. And I'll now turn the call over to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Alex Slagle from Jefferies.

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Alexander Russell Slagle, Jefferies LLC, Research Division - Equity Analyst [2]

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I wonder if you could provide some commentary around the February same-store sales trends in the U.S. and maybe what gives you confidence in the range -- the comp range you outlined in the guidance, specifically if there's any measurable metrics you're following, maybe brand sentiment or something like that.

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [3]

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Sure, Alex. It's Steve. So thanks for the question. So just stepping back a bit, certainly, a challenging end to 2018 and a very difficult start in January. So I called that out because I think there's a couple of more short-term nonrecurring factors in the business and kind of our outlook on the full year 2019, which we called out some of the -- which we're very excited about the long-term potential of the loyalty program. But it did provide extensive pressure on check when we coupled that with the -- we wanted to, obviously, gain visibility and awareness to the program to garner our attention and increase the enrollment piece. We coupled that with the new cheese stick promotion. And then we layered on a pretty extensive value for Papa John's in January with the 2 medium promotion at $6 each. So I think a number of those things provided pressure in late December and January. But moving forward, to your question, in February, we're seeing very solid improvement from February, from the January, and we certainly have incorporated that into our full year outlook, which we're not proud, necessarily, of a negative 1 to negative 5. But we do know the first half of 2019 is going to be more challenging than the back half of 2018, but we're very pleased with the progress, thus far, here in February on the backs of getting back to talking about quality, getting back to talking about interesting ingredients and an interesting product, that would be our Philly Cheesesteak Pizza. And that's been supported by a complete new marketing and creative campaign from the team here, so excited about the outlook.

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Alexander Russell Slagle, Jefferies LLC, Research Division - Equity Analyst [4]

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And then on the development front, if you could provide an idea around the expected gross openings or closings in 2019 that's baked into that net guidance.

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [5]

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Sure. Joe, do you want to talk a little bit about results of that?

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Joseph H. Smith, Papa John's International, Inc. - Senior VP & CFO [6]

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Yes, I mean we're not going to give the specific numbers on that, obviously. You can kind of look at where we are this year and, hopefully, that will give you a pretty good guidepost.

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [7]

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Alex, it's Steve, I'll just add to that because we probably don't want to give details and a breakdown of that. But I think you look at the overall gross performance, you -- as I outlined in my opening comments, the 304 units in the International side, our expectations are similar, those kind of track rates that were experienced in the International side. We know that we're going to continue to experience some pressure in closures domestically, but I would call out that a good chunk of the closures that we experienced in 2018 was the nontraditional venue, so that is more of a nonrecurring event. So we do expect a step-down in closures domestically in 2019 just because of that event. And obviously, the quicker we can turn the sales around, the more optimal we'll have potential on the overall net units hitting at the higher end of our range there.

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Operator [8]

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And our next question comes from the line of Peter Saleh from BTIG.

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Peter Mokhlis Saleh, BTIG, LLC, Research Division - MD and Senior Restaurant Analyst [9]

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Great. I just wanted to ask about the marketing budget. I think, Steve, you had mentioned, next month, you guys are going to launch a new campaign. What is the expected marketing budget in 2019 versus 2018? Will you be investing more dollars into the marketing budget? And how do you plan to spend it? How is the cadence looking for 2019 versus 2018? Is there going to be heavier spend in the second and third quarters? Or how should we think about your marketing dollar spend this year?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [10]

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Sure, Peter. It's Steve. So I'll touch on it a bit. So I mean, first off, just stepping back on our overall National Marketing Fund contribution rate. In 2018, that was 4.5%. That did step up the first day of January to 4.75%. Obviously, that contribution rate is driven off of same-store sales and overall units. So there is some pressure on the overall side of the revenues coming in and the contribution rate that drives it. But because of the increase in the contribution rate, we do think we got close to parity levels on the overall access in our National Marketing Fund dollars. We'll have additional pressure, as you would expect, from an inflation standpoint on the media side. But the team has done a nice job. They're really thinking about the cadence of how we plan out each of the quarters. I don't want to get into specific cadences of the investments within the quarter, but it will be a well-thought allocation of those investments. We will still be, as you would expect, spending money into television, spending money into digital and social. We'll be evaluating things like our partnerships that we have and also looking to expand that in potential influencers to help support the brand. Last year, in the fourth quarter, PJI, Papa John's International, did make an investment of $10 million into the National Marketing Fund. So that, certainly, is a headwind as we get -- look into 2019, but those are part of that evaluation process. With the $200 million investment, as we talked about, half of that being invested back into the business. Those holes will be areas that Mike Nettles and myself and the rest of the team will be looking at how do we evaluate where we make the right investments to take up some of the shortfalls we may have in the marketing front and making sure that we're making the right investments to support unit economics in the franchisees and primarily, obviously, to get sales back to the levels that we needed to get them at, too. So I'd say a lot to that. And Mike, I don't know if you want to add any color just to give a little bit commentary around where we're at from the growth team perspective.

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Michael R. Nettles, Papa John's International, Inc. - Executive VP and Chief Operating & Growth Officer [11]

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Sure. Thanks, Steve. Peter, so really the only thing I would probably add to what Steve just said is our spend will probably be a little different this year than it was last year. Clearly, if you look back at 2018, we had quite a few challenges on the PR side of the equation and the sentiment side of the equation. So we had to put a lot more effort probably into that than maybe commercial retail marketing. This year, it continues. We've actually done quite a bit on the brand reputation side of the equation, but you're going to see a lot more commercial advertising for the brand and very different with the launch of Papa Rewards, we shared with you and others in the past, a big part of that is actually the introduction of one-to-one marketing. And so a lot of that marketing now goes through our own individual proprietary channels as opposed to us having to go out through maybe the top of the funnel kind of traditional marketing. But nonetheless, you will see a heightened level of commercial messaging, a lot more on the one-to-one, which really gives us a very different marketing mix in 2019 than we had in 2018.

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Peter Mokhlis Saleh, BTIG, LLC, Research Division - MD and Senior Restaurant Analyst [12]

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Great. And then just -- I know you guys received $200 million from Starboard. $100 million is already accounted for. The other $100 million, is that anticipated to sit on the balance sheet? Or do you guys expect to use some of that for some of these investments? Could some of this go into the marketing fund? Or how do you guys anticipate using those funds over time?

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Joseph H. Smith, Papa John's International, Inc. - Senior VP & CFO [13]

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Peter, this is Joe. We'll start off, as you said, paying down the revolving line of credit. But the nice thing is, obviously, we can access that back. So the debt will initially go down. But then under the revolver, we can access that and make the necessary investments that once we test and prove that those investments have a good return, we'll just roll that back and use those accordingly.

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [14]

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And Peter, just to add on to the latter part of that question on where are we going to spend the money. So we are still -- we're only 3 weeks in. So we want to make sure that we are working with all of our stakeholders to assess what are the best places to be investing this money. But we've talked about our 5 strategic priorities being people, brand, the value in the product side, technology and then, of course, unit economics. Those are very broad and, there's a number of initiatives that layer up within the growth team to support those. So we are in the assessment phase evaluating each one of those initiatives. But we know the areas of where we need to invest is to improve team member experience and improve customer experience and the lagging indicator of that, obviously, being sales. So we need to get the sales turned around to improve unit economics. We know we'll be able to do that by making sure we're really leaning into the things that are going to improve, again, team member experience and customer experience. So as we make decisions, as we get through our assessment phase here, certainly, we'll be communicating those things out to the Street. I don't have a time line on that yet because we want to be very thoughtful. And to Joe's point, there will be a lot of test and prove outs, scaling things from a small standpoint, in individual markets, before we do anything from a national perspective.

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Peter Mokhlis Saleh, BTIG, LLC, Research Division - MD and Senior Restaurant Analyst [15]

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Great. And then just my last question, Steve, I think you mentioned more menu innovation and potentially, some more news on the value front. Can you give us a little bit more specifics in terms of what you may be testing? Or what you may be thinking about from either a carryout or delivery perspective on the value side?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [16]

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Sure, sure. It's Steve. I'll start, and then I'll ask Mike to jump in as well because he's got -- he spent a lot of his time here lately on the product side. And we got -- there's a lot of excitement and energy around the things that we are evaluating. As the operator -- as you know, my long track record in operations, looking through the lens of what also is not going to create operations complexity in our business model, always looking through the lens of simplicity but trying to make sure that we are connecting with things with our consumers. So the first piece is -- it might not sound like a lot, but this is the most extensive product launch that we've had in the history of the brand in terms of number of pizzas. So the first one I would highlight is the 6 handcrafted specialty pizzas that are soft launching this week to a national media supported launch next week. Those 6 handcrafted specialty pizzas I called out in my prepared remarks, they include a number of new premium ingredients. And we think the uniqueness of that will also be a very good value proposition because we're offering them at $12 for not only the 6 new specialty pizzas, but we're extending that to all of our specialty pizzas. And as I talked about, February performance improving. That is the same promotion but with just the Philly Cheesesteak Pizza and all specialties in period 2 here in February. So nice performance from that, so we want to continue along that. As far as additional value in the product side, we're -- I think everyone is well aware that we have been testing sandwiches out in various markets across the country, continuing to test and read and learn to understand how that may play within our value proposition. And I'll ask Mike to talk about a little bit, just strategically, how we're thinking about it from a product standpoint and some of the other areas that we'll be targeting and how we're looking at value in general, Mike, because I noticed this is a big part of the growth team's work.

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Michael R. Nettles, Papa John's International, Inc. - Executive VP and Chief Operating & Growth Officer [17]

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Sure. So Peter, we've always stood for better ingredients and better pizza. That's a big part of our brand heritage. I think we -- in years past, maybe we've not spoken to that in a way that's resonated directly with the consumers as we need to, and so we're really leaning heavily back into that. We believe that better ingredients do make for a better pizza. And quite frankly, our customers deserve a better pizza and an overall elevated better pizza experience. So a big part of that starts with the product, Steve just said, with all the new specialties coming up. But if you follow us on social media, you can see that we've really been engaging our customers with some fun ideas, help us choose our next really crave-able kind of pizza item. The winner right now of that contest has been the Hot Honey Chicken & Waffles pizza. So you can expect to see hit -- that hitting our menu at some point soon. Some of these new creations may be introduced as LTOs. But just like the Philly Cheesesteak Pizza was a fan favorite and came back in this past period, it remains on the menu now as one of our new signature specialty items that are out there. So we're going to lean heavy into really trying to come up with some bold and some creative pizza types that you can get at Papa John's, but you can actually enjoy the better ingredients that go along with them that really help us to tell that story. If you've also been kind of following the brand for at least the last 2 periods, you're seeing 2 very clear messages from us, $6 and $12. And that's very intentional. You'll probably see that moving forward in the periods yet to come as we try to test some of these value constructs. We hear from our customers the perception sometimes that maybe Papa John's has been priced too high in the past relative to the overall experience that they receive. So as we lean in on better pizzas, we really lean in on the operating experience and the customer experience. We're also going to lean in heavily on saying, hey, there is an accessible value construct that you can come in and get a pizza for $6. We led that in period 1 with 2 medium, 1 tops for $6 each. And in period 2, that's a carry-out special, which is also a medium 1 top for $6. It may not always be the pizza, it may be something else, but that's a big part of us testing those value constructs with very high customer acceptance. And specifically, new customer acceptance are actually being targeted in such a way that we're driving new customers to the brand. And it's working out very well for us. The $12 side of the equation, $12 specialty for the Philly Cheesesteak in period 2 that became a $12 any, that now leads us into period 3 where we're finding a very high, overwhelming support for our great handcrafted specialties that we've got out there. The $12 price point seems to resonate well. Customers see it as not only accessible but, as you can imagine, it actually drives a nice check for us as well. So we're happy with that as a starting point, but we're going to continue innovating on both of those things to really make sure that it's not just a better pizza, it's an overall better pizza experience.

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Operator [18]

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And our next question comes from the line of Alton Stump from Longbow Research.

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Alton Kemp Stump, Longbow Research LLC - Senior Research Analyst [19]

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I just wanted to ask -- and I apologize if I missed what you said exactly in the comments, but as far as your concessions given the franchisees, I think you mentioned, Steve, that they're going to at least run through the end of the first quarter. So are those just for the next 3 months as far as the commitment there and then you'll kind of see where you're at start of 2Q? Or is it a longer commitment that just -- over the rest of the first quarter?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [20]

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Sure, Alton, it's Steve. Yes, in my prepared remarks, I did call out that we have made formal commitments and concessions and royalty relief through the first quarter for all of our franchisees in the domestic business. But I did also call out, in the first half of the year, we do expect to have continued unit economic pressure as we continue to push some of the marketing initiatives to get the sales going in the right direction. So within the outlook, for our guidance, we provided ourselves with headroom to be able to find out the right level of support to provide to our franchisees throughout the rest of 2019 but focusing in on what we believe will be the more challenging part of the year through that first half.

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Alton Kemp Stump, Longbow Research LLC - Senior Research Analyst [21]

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Okay, makes sense, Steve. And I guess one more, and then I'll hop back in the queue. Just from a pure market perspective, I just kind of think about, obviously, your efforts to fix the brand image versus what's going out there with new products and promotions. How do you balance that? In other words, like do you feel that there is some more sort of brand fixing that you need to do first before you get more aggressive with promotions? Or do you think you can do both at the same time over the course of the current year?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [22]

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Sure, Alton, it's Steve. And then -- and I'll let -- I'm going to let Mike comment on this because this is something that, obviously, that we have to balance, and we've had an interesting challenge here over the last year in trying to find and strike the right balance of product versus things that we can do to help on the sentiment side. We have to do both. So I think what you've seen represented from us, and I will call out February without getting into specific financial results, but we did -- we've done some things with making our first official grant of the Papa John's Foundation that we have not officially announced publicly yet, the startup of the Papa John's Foundation, but we made a $500,000 grant to Bennett College. So I called that out because it's around doing good things in the communities that we serve. It was very, very well received and helped make significant sentiment improvement marks for the brand. It can't be one thing, it has to be a cadence of multiple things so we've got for the full calendar year of 2019, continuing to have plans on things from a public relations standpoint by just doing good work. At the same time, a lot of the works that we've been doing on diversity, equity and inclusion, as I called out internally, a lot of internal work happened to be through the conclusion of the cultural audit. But the cultural audit concluded and gave us an extensive lineup of recommendations that Marvin Boakye, our new Chief People Officer; and Victoria Russell, our Chief of Diversity, Equity and Inclusion, will be leading the efforts to work on the internal. I fundamentally believe the more work that you can do on the internal culture, the more that, that output will translate into overall better consumer sentiment for the brand. And I will tell you that we've had our challenges over the last year, but we found the opportunity to think about partnerships and influencers because of the work that we have been doing over the last several months. At the same time, to your question on product, you have to figure out how to do both because we do have to have exciting value proposition, innovative products out there, leaning in on the quality story. So that we think for the 2019 calendar year, we've built out a road map with the appropriate level of multiple things to move the brand forward. Mike, I said a lot of there, but I don't know if there's anything that you'd like to add on to that just to complement.

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Michael R. Nettles, Papa John's International, Inc. - Executive VP and Chief Operating & Growth Officer [23]

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The only thing I would add, because I think Steve did a good job of kind of outlining, is if -- in our business, one of the things we're really focusing on in late 2018 and, certainly, leading into 2019 and beyond, is the quality and the better story, but not just tell it in terms of our ingredients, tell it in terms of the happiness and kind of real human kind of interaction basis. So everything from the work that we're doing, as Steve said, inside the organization with our people and with those voices that we talked about in the Voices campaign, the commercial that had a lot of success back in the last quarter of 2018, to making sure we continue to tell people the story of why they want to buy Papa John's, not just for the better product that it is but because we're good corporate citizens, because we have a good placement out there in the communities that we support and we have happy and engaged people inside the store servicing the needs of those customers accordingly. So we know that this is a long-term effort. This is something we're going to have to keep pulsing on. But back to the calendaring function that Steve just talked about, the team actually set up the full year in advance, and we've got a very strategic set of kind of master messaging that goes out each period with some underlayments to go with it and really trying to push us at an integrated level with all channels. Whether it's broadcast television or social media, you'll see many of these messages again and again that when we say better ingredients, we don't just mean what's on top of the pizza but actually who's making the pizza and who we're serving it to. That's a big part of our messaging moving forward.

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Operator [24]

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And our next question comes from the line of Gregory Badishkanian from Citi.

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Frederick Charles Wightman, Citigroup Inc, Research Division - Assistant VP & Analyst [25]

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It's actually Fred Wightman on for Greg. The February commentary was really helpful. It was nice to hear that things sound like they've improved, but should we be expecting any impact from the Easter shift as we move through the rest of the quarter?

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Joseph H. Smith, Papa John's International, Inc. - Senior VP & CFO [26]

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Yes, Fred, this is Joe Smith. Looking at that and also just the change in New Year's Eve, it's actually going to not be too significant for us, probably less than 1% impact on our comparable sales.

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Frederick Charles Wightman, Citigroup Inc, Research Division - Assistant VP & Analyst [27]

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Okay. And then -- that's helpful. And then understanding that you're still seeing some ticket headwinds from the loyalty shift, what are you guys assuming for pricing for the year?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [28]

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Fred, it's Steve. And we don't typically break out check and traffic on an annual basis. But I will tell you that we're going to be very focused on getting traffic go in the right direction. We still have a relatively low share within a very fragmented large category of about $40 billion category. So we're going to be very focused on getting traffic moving back in the right direction. We do know the layer, to your point, of the loyalty program and what that's going to do. It's a balancing act of how we'll appropriately plan out the cadence of all of our promotions through the year. So we know we got to get traffic growing, but we do want to have stability in our check. And what we had in period 1 that I called out was instability in our check because of a multiple things all at the same time. So wouldn't expect that to be drag on what we would deem to be appropriate kind of check averages on a go-forward basis.

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Frederick Charles Wightman, Citigroup Inc, Research Division - Assistant VP & Analyst [29]

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Okay. And then the gap between company-owned and franchise did come down a little bit this quarter. How should we think about that going forward?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [30]

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So Fred, it's Steve again. So we had a long track record of very solid performance, as you would know. I think the CAGR on a 5-year basis through 2017, excluding '18, was about 5% per year for our corporate restaurants. So they've had a tremendous run, and they surpassed our franchise results by 1% to 2% per year on an average year. So the franchise folks have closed the gap a bit, but there are a number of factors within the individual corporate markets that have caused some, what I would call to be, more short-term pressure on the overall comps. I don't believe as we get through the full year that you're going to see the kind of spread that we've experienced over the last couple of quarters. We do have some work to do in our corporate restaurants. They've had significant pressure not only in sales but in overall margins. But in the conversations I've called out in my prepared remarks, the planning, the energy and drive from our corporate operations leadership team, getting back to the basics and the fundamentals that drove the performance for multiple years, there is a level of energy and confidence that we'll get back to those levels. So I fully expect the gaps to close as we progress throughout the year.

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Operator [31]

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And our next question will come from the line of Will Slabaugh from Stephens.

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William Everett Slabaugh, Stephens Inc., Research Division - MD [32]

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I had a question on the check and the traffic just given the movement that you've talked about in the past couple of periods. So it sounds like the checking impact you mentioned was from multiple discounts that layered on to one another. I wonder if you could quantify that in any way versus the recovery that you've seen more recently. And I guess, maybe kind of behind the question is how traffic behaved during that period. So did we see fairly similar traffic results, and it was mainly the ticket that was driving it down? And how do you feel about sort of the traffic growth that you're seeing right now, I guess, relative to your expectations and if it behaved as you would have expected, along with that February recovery you've talked about?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [33]

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Sure, Will, it's Steve. I mean, I would just say that overall disappointment both in traffic and in check in December and January. We saw a slight uptick maybe in the traffic side, but there wasn't the kind of lift that we would expect for the check declines that we experienced in December and January. With that being said, turning the page to February, we've got back to, as I called out, more stable levels of what we would be looking for on the check side and seeing significant improvement from January, February on the overall transaction level on a per week basis by store and as you look at that on a comp perspective. So I think you got to kind of exclude some of the things that happened in December and January because there are so many things that are moving in that 1.5 months period of time. We're thinking about moving forward, we like what we've seen in February. We think we can balance out that based on the cadence of the promotions that we have as we think about the rest of this year. And again, we're going to be very focused on getting traffic moving back in the right direction because we donated a lot of share in 2018, and we certainly want to get that share back over a period of time.

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William Everett Slabaugh, Stephens Inc., Research Division - MD [34]

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Got it. And then one more question, if I could. Your menu innovation you've been talking about, it sounds like you're capitalizing here first as you sort of kind of reemerge here, and your brand equity is around quality. So I'm curious how you plan to treat some of these more specialty pizzas if that $12 price point is something that you plan to sort of hang with for a while? It sounds like that it is, as you mentioned, $12 and $6. And if there is room there, if you feel like there is room to go up if you go more specialty and how you feel like the brand could play if you did go more premium and then kind of what that means for value. If $6 ends up being your national value message, does that make sense for every market? Or might value be more regionalized or localized down the road?

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Michael R. Nettles, Papa John's International, Inc. - Executive VP and Chief Operating & Growth Officer [35]

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Hey, Will, it's Mike. I'll take some of that, and my colleagues here can chime in. But basically, from our perspective, we're still in test mode. $6 and $12 seem to be working very well for us together, more so than maybe individually. They're targeted at very different customer segments. We're using our newly developed marketing technology to really go after those segments with various types of messaging and promotional offers that really pulse on those. And it's working really well. It's been a great formula so far. It still has room for tweaking, and we're not sure that those will be the final numbers that we end on forever. However, having said that, there will always be opportunities for franchisees in different markets to have some opportunity for upsells. That's a feature that is really important to us in the digital systems, which would allow a franchisee to actually have a little more local flavor on what they upsell you to or what you're being upsold from. They also have quite a bit of control over the pricing of that, be it just extra ingredients or would you like to Papa-size that and take it to an extra-large pizza as opposed to the large pizza. So there'll be plenty of opportunity to keep pushing for a little higher premium, and we've not ruled out that there could even be a tier above the $12 side of the equation. Clearly, we have some of that now with our extra-large pizza. It's one of the few in the industry that actually is there and performs, and it's actually a great ticker draw for us. But there'll be some other opportunities for us to continue pulsing around that as well. So while it's working, I don't want to say that, that is our absolute future. We'll continue looking at it and clearly looking for opportunities, to Steve's point, to not just drive transactions but also drive check as we look for opportunities to put more out in front of the customers that they really want.

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [36]

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And Will, it's Steve. Just to -- I'd just call out one more thing, and Mike said this before, but I think it's very important, the introduction of the new loyalty program. That is a complete value platform. So it is a richer program. It provides more value to the consumer and also gives them the flexibility of being able to order anything on our menu now. So we certainly want to highlight that as part of our overall frequency driver for the brand from a loyalty and value perspective. At the same time, we do know that we got to have real balance and rigor out there, as you called out, on the individual markets, in some of our higher wage markets. So we'll be leveraging some of the new tech within the loyalty program to be more specific, targeted, segmenting out, building out some of our one-to-one capabilities so that we're not broad-brushing value where value is not a need state from a consumer perspective. So we're excited about some of the new tech that we have, and we're excited about how we might target that. And when we say $6, it might not mean one item at $6. It might be a requirement of multiple items purchased at $6. And this may not be pizza. So we just know that we need to have a value layer out there that gets -- provides the opportunity for consumers to get access. So excited about the learnings that we've seen thus far. But to Mike's point, we've not made final decisions on exactly how we intend to have that $6 layer unlike -- we like what we have seen. And we'll, obviously, continue at least through period 3 in March there with the $12 specialty piece.

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Michael R. Nettles, Papa John's International, Inc. - Executive VP and Chief Operating & Growth Officer [37]

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Yes, Will, just one final comment on that. You would have seen this if you were a Papa John's customer during the Super Bowl. We've done bounce-back promotions, that's fairly common in this industry. But for the first time, we actually executed the bounce-back program through the new Papa Rewards system. And so it was literally no need to enroll. You bought a pizza from us during the period around Super Bowl, then you are automatically enrolled for a bounce-back of a free pizza in the following period. And there really was a high usage of that at a customer level, but it also gave us very directed ability to communicate to that customer what rewards they had. They were dropped into their wallet. They didn't have to remember a promo code. It was all automated through the system. Really, a good example of why we're going to continue playing with the right price points because we have new technology and capabilities to really maximize on this and deliver some really surprise and delight on the consumer side but also drive some incremental check and profitability opportunities for us on the business side.

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Operator [38]

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And our next question comes from the line of Chris O'Cull from Stifel.

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [39]

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I apologize if I missed some of your responses. I've been bouncing back and forth between calls. But Steve, why did -- why do you think the Philly Cheesesteak promotion is working better in February than it did last fall?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [40]

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We didn't run the Philly Cheesesteak last fall, but we -- our LTO products actually...

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [41]

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In the past.

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [42]

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In the past. Well, it actually performed quite well in the past the last time that we did run that specific promotion. And some of our LTOs in the past with the specialty pizzas have performed at mixed expectations, but we've seen very nice incremental new customer traffic coming from those promotions. And I think the best way to compare it against, though, is that what we did in period 1, trying to have parity value coupled with loyalty, coupled with the free cheese stick promotion, drove extensive pressure on check and i.e., negatively impacted the overall sales piece. But also it's not just about the Philly Cheesesteak Pizza. I think the marketing teams did a really nice job on the creative execution. So it really does highlight the quality of our ingredients. We have a new media buying agency that we brought on last year that's -- some of that work, making sure that we're allocating the right investments, targeting the right consumer. So it's really a recipe for success as opposed to it's all about 1 product that really drove the overall performance and improvement we've seen in February. And it's not a limited time offer. So we've done a complete refresh of our overall specialty lineup here and introduced new pizzas and also took off some of our underperforming specialty pizzas as well.

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Michael R. Nettles, Papa John's International, Inc. - Executive VP and Chief Operating & Growth Officer [43]

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To that same point -- it's Mike, Chris -- just to add on to it. Last time we run Philly Cheesesteak, and it did perform well, it was marketed the same way to everybody in the Papa John's universe. So we just did a broadcast marketing like we always did and let that kind of speak for itself. This time we still did that with some really compelling creative to go along with it, a lot of messaging around it. But again, leveraging all the investments we made in 2018 with new marketing technology, there was a massive amount of targeted marketing. We went after people that had bought it before. We went after people that looked like the people that had bought it before through data base marketing and the one-to-one marketing. And we found really good reception by using that new technology to try to drive more customers into the brand that we thought would really like it by telling that great ingredient story and that better pizza story. So the technology is working really well for us on the marketing side. That's a big reason why the growth team was built: to merge both the technology pieces and the marketing pieces together so that we have much higher efficacy in our overall messaging. And that's just starting. We got a lot of room to play with. But quite frankly, we're really pleased with how that technology is working so far.

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [44]

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Okay, that's helpful. And then Joe, do you know what percentage of domestic franchisees had a loss last year in 2018?

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Joseph H. Smith, Papa John's International, Inc. - Senior VP & CFO [45]

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Yes, Chris. I mean, we're not going to get into specific information on that. Obviously, we have seen some of our franchisees face some more pressures. We have some metrics that we use. And that is some of the metrics that we use to know how to go in and help some of the specific franchisees that might need additional help.

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [46]

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And I'd just add to it. Chris, it's Steve. I mean, I think that this -- what we attempted to do there, and I think pretty successfully, is bridge some of the challenges from a unit economic perspective with the multiple things that we did in support last year. So if we didn't do those things, there would have been a much higher percentage of stores that would have been below that breakeven point. We have a percentage of stores that are below the breakeven point that we're constantly trying to drive the top line and improve their execution and overall unit economics. But as we looked at it, how can we provide levels of support to be -- bridge solutions to improving the overall sales, in addition to making investments like we did last year in the National Marketing Fund, the $10 million. So it's a balancing act. But clearly, depicted by the increase in number of closures last year, it gives you a feel for the amount of pressure that was occurring on the business model last year.

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [47]

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That's helpful. And then Joe, I know in the past, the company has targeted a 6% commissary margin. Do you have an expectation for the commissary margin this year?

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Joseph H. Smith, Papa John's International, Inc. - Senior VP & CFO [48]

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Yes. I mean, Chris, again, we're not going to get into the specific percentage margins. But again, we're always going to keep that relatively consistent. It is lower last year as, again, we made some -- we reduced our margin to assist our franchisees. So I think you see that. Again, we continue to evaluate it, but we've always tried to maintain something consistent that we think is fair to our franchisees and us. But we're not going to, obviously, increase that significantly.

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [49]

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Yes, Chris. I mean I think -- I mean, it's a fair question because we did -- in the fourth quarter last year, to Joe's point, we did provide a level of relief on the food service side based on the transaction level that we experienced. The margins at the food service side of the business is clearly driven by transactions and piece counts. And when we saw those declines, we didn't feel it appropriate to raise prices for our franchisees. So that was part of the level of support that we provided. That was a one-off. We have had a very consistent verbal agreement with our franchisees for many, many years. We want to continue to honor that verbal agreement and, to Joe's point, maintain a consistent margin prior to the 2018 piece and use the other pieces to help continue to support our franchisees and, again, assessing where we may make investments to fix the top line. So I would expect, if you look at your modeling, we're thinking about margin percentages looking more similar to pre-2018 levels.

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [50]

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Okay. And then how should we think about G&A expense if you exclude the special charges for this year?

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Joseph H. Smith, Papa John's International, Inc. - Senior VP & CFO [51]

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Yes, I think we're going to be very consistent. Again, if you take the special charges out of both years, then I think you're going to be in a fairly consistent place, Chris.

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [52]

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In terms of dollars.

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Joseph H. Smith, Papa John's International, Inc. - Senior VP & CFO [53]

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In terms of dollars and the percentage, yes, but it's more on the dollars.

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [54]

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Okay, okay. And then should we expect the royalty relief impact in the first half of the year to be similar to what we saw in the fourth quarter?

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [55]

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So Chris, it's Steve. So the fourth quarter is going to very -- look very similar to what we have planned out for the first quarter. We are still evaluating what we intend to do beyond the first quarter, how much support, where we might apply that support. But again, we, as you might have heard in the question earlier, believe that the first half of the year will be more challenging. So royalty abatement or support of franchisees is likely to occur more predominantly in the first half of the year and us leveraging investments more throughout the year and more into the back half of the year as we assess and evaluate some of these tests to get the sales moving into the right direction. So we have not made a final decision on exact numbers, but I will tell you that we gave ourselves enough headroom within the guidance outlook to be able to incorporate what was -- what will be necessary to support our franchisees.

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Operator [56]

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And I'm showing no further questions in the queue. I'll turn the call back to Steve Ritchie for closing remarks.

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Steve M. Ritchie, Papa John's International, Inc. - President, CEO & Director [57]

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So I just want to thank you, guys, for joining the call today. I don't want to lose sight of the fact that we have a lot of positivity and a lot of excitement around the way forward. But once again, this will take time. We do have a lot of work to do. We've got a lot of plans. We've got a lot of initiatives. We got strength in the board. We got strength in financial resources and flexibility. But the assessment, the initiatives and the evaluation of those things will take some time, but appreciate your continued support for the Papa John's brand and look forward to talking to you next quarter. Thank you.

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Operator [58]

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Ladies and gentlemen, this does conclude our program, and you may all disconnect. Everyone, have a great day.