Here's Why You Should Retain Papa John's (PZZA) Stock Now
Papa John’s International, Inc. PZZA is likely to benefit from menu innovation, unit-expansion efforts and loyalty programs. Also, the emphasis on digital enhancements and revenue management capabilities bode well. However, rising interest rates and inflationary pressures are a concern.
Let’s discuss why investors should retain the stock for the time being.
Factors Driving Growth
Papa John’s continues to focus on product introduction to drive growth. In May 2023, the company rolled out its new menu in collaboration with Pepsi and Frito Lay. This includes Doritos, Cool Ranch and Papadia. The initiative paved a path for improvement in weekly transactions and additional traffic to its digital channels. PZZA expanded its pizza platform with the launch of Garlic Epic Stuffed Crust Pizza. The company stated that it has significant LTO and long-term platform launches in the pipeline. We believe that menu innovation efforts will likely drive long-term ticket and transaction growth in the upcoming periods.
Papa John’s is committed to developing and maintaining a solid franchise system. The company strives to eliminate barriers to expanding in existing international markets and identify new market opportunities. In first-quarter 2023, the company announced a development agreement to enter India in partnership with PJP Investments Group. This partnership plans to open 650 new restaurants in India over the next 10 years. During the second quarter of fiscal 2023, the company announced the acquisition of the M25 division of Drake Food Service International in the U.K. The financial terms of the deal have been kept under wraps. The new restaurant portfolio will have 91 locations across London and other parts of the U.K. To enhance sales and restaurant-level profitability, the company is likely to implement operating model improvement, which includes revenue management abilities, product as well as technological innovation and operational efficiencies.
Meanwhile, the company is on track to meet its 2023 global development outlook of opening 270 and 310 net new restaurants. As of Jun 25, the company had a global restaurant count of 5,780, with operations in 48 countries and territories worldwide. It expects its worldwide net unit (from fiscal 2022 through 2025) to grow between 1,150 and 1,400 net new units.
The company’s loyalty program witnessed a rise in digital transactions during second-quarter 2023. Features like early access to new products, better targeting of offers and promotions and higher frequency and ticket have benefited the company. During the quarter, digital channels contributed nearly 85% to the company’s sales. The company emphasized on increasing investments in this channel to increase customer frequency and personalization and attract new members.
Concerns
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Shares of Papa John's have declined 14.7% in the past year against the industry’s growth of 5.4%. The downside was mainly due to challenging macro environment, including softening economic conditions (in the U.K.), rising interest rates and inflationary pressures.
During the fiscal second quarter, the company’s international comps were negatively impacted by challenges in the U.K. market. Adverse macroeconomic conditions resulted in negative comparable sales and a challenging operating environment for its franchisees. During the quarter, comps at international restaurants were down 0.7% year over year. The company is cautious about macroeconomic challenges and uncertainty in international markets.
Zacks Rank & Key Picks
Papa John's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are:
BJ's Restaurants, Inc. BJRI sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have increased 15.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 423.5% growth, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. ARCO currently carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. The stock has gained 44.4% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS indicates 19% and 11.6% growth, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. CHUY carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 26.6% on average. Shares of CHUY have increased by 61% in the past year.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS indicate an increase of 9.5% and 32.9%, respectively, from the year-ago period’s levels.
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Papa John's International, Inc. (PZZA) : Free Stock Analysis Report
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