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Papa John's (PZZA) Announces Expansion Plans in Germany

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Papa John's International, Inc. PZZA, in association with franchise partner PJ Western Group, recently announced expansion plans in Germany.

PJ Western Group is one of Papa John’s largest global franchisees in central and eastern Europe. Through this partnership, the company opened first seven Papa John’s restaurants in Magdeburg and Leipzig. Additionally, it plans to open another six stores in Halle and Merseburg by the end of summer 2021. Moreover, the company stated that it intends to open 250 new restaurants in the German market over the next seven years.

In this regard, Jack Swaysland, chief operating officer, International at Papa John’s, stated, “This expansion into Germany follows a record year of sales and growth that has positioned Papa John’s to further accelerate development in international markets. We are excited to expand our partnership with PJ Western.”

Focus on International Expansion

Papa John’s is committed toward developing and maintaining a strong franchise system. In recent years, the company has entered 12 new countries, including France, Spain, Tunisia, Iraq, the Netherlands, Morocco, Kazakhstan, Kyrgyzstan, Poland, Pakistan and Portugal. It is also seeking potential franchisees in Brazil, Japan and Southeast Asia.

During first-quarter 2021, the company opened 68 international restaurants with new restaurant openings in Cambodia and Germany. As of Mar 28, 2021, the company had a total of 2170 stores operating across 50 countries outside the United States. Meanwhile, the company had approximately 1,650 restaurants (250 units in North America and 1,400 units internationally) in the development pipeline, majority of which are scheduled to open in the next six years. For fiscal 2021, the company expects to open 140-180 net new restaurants globally.

Going forward, the company plans to increase its international units, a large portion of which will be franchised. We believe that re-franchising a large chunk of its system reduces a company’s capital requirements as well as facilitates earnings per share growth and ROE expansion. Free cash flow continues to grow, which enables reinvestment for increasing brand recognition and shareholder return.

Price Performance

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Shares of Papa John's have gained 23.4% so far this year compared with the industry’s 9.2% growth. The upside was primarily driven by the company’s optimized restaurant model, brand design enhancements and increased integration with third-party aggregators to boost its accessibility channels. This along with focus on product innovation, partnerships, international expansion and franchising initiatives bode well. Going forward, the company continues to reinforce its commitment toward providing better customer experience with enhancements to its digital ordering process. Nonetheless, earnings estimates for 2021 have moved up in the past 30 days, depicting analysts’ optimism regarding the stock’s growth potential.

Zacks Rank & Key Picks

Papa John’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY, Dine Brands Global, Inc. DIN and Fiesta Restaurant Group, Inc. FRGI, each sporting a Zacks Rank #1.

Chuy's Holdings has a trailing four-quarter earnings surprise of 127.6%, on average.

2021 earnings for Dine Brands and Fiesta Restaurant are expected to surge 269.3% and 400%, respectively.

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