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Papa John's (PZZA) Beats Q2 Earnings Estimates, Stock Down

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Papa John’s International, Inc. PZZA reported mixed second-quarter fiscal 2022 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. The top line rose year over year, while the bottom line declined.

Following the results, the company’s shares dropped nearly 3% during trading hours on Aug 4. Negative investor sentiments were witnessed as the company cited a challenging macro environment, including softening economic conditions (in the U.K.), accelerating commodity costs and labor inflation. The company anticipates the headwinds to persist into the second half of 2022.

Earnings & Revenue Discussion

During the fiscal second quarter, the company reported adjusted earnings per share (EPS) of 74 cents, beating the Zacks Consensus Estimate of 73 cents. In the prior-year quarter, the company reported an adjusted EPS of 93 cents.

Papa John's International, Inc. Price, Consensus and EPS Surprise

 

Papa John's International, Inc. Price, Consensus and EPS Surprise
Papa John's International, Inc. Price, Consensus and EPS Surprise

Papa John's International, Inc. price-consensus-eps-surprise-chart | Papa John's International, Inc. Quote

 

Quarterly revenues of $522.7 million missed the consensus mark of $530 million by 1.4%. However, the top line increased 1.5% on a year-over-year basis.

Global Restaurant Sales & Comps

In the fiscal second quarter, total comparable sales fell 1.4% year over year against a 9% growth reported in the prior-year quarter. Domestic company-owned restaurant comps in the quarter under review declined 1.5% year over year against a rise of 5.6% reported in the year-ago quarter.

At North America franchised restaurants, comps rose 1.4% year over year compared with a 5.2% growth reported in the year-ago quarter. Comps at North America restaurants increased 0.9% year over year compared with 5.2% growth reported in the year-ago quarter. Comps at international restaurants were down 8% year over year against a growth of 21.2% reported in the prior-year quarter.
 
During the fiscal second quarter, total global system-wide restaurant sales growth came in at 2.6% year over year compared with a 12.2% rise reported in the prior-year quarter.

Operating Highlights

Adjusted operating income in the fiscal second quarter totaled $40.4 million compared with $48 million reported in the year-ago quarter. During the quarter under review, total costs and expenses amounted to $483.8 million, up 2.8% from the prior-year quarter’s level.

Balance Sheet

As of Jun 26, 2022, cash and cash equivalents totaled $52.1 million compared with $80.7 million as of Mar 27, 2022. At the end of the fiscal second quarter, long-term debt (less current portion) totaled $536.4 million compared with $528.1 million at the end of the first quarter of fiscal 2022.

Inventories as of Jun 26, 2022, were $38.1 million compared with $39 million on Mar 27, 2022. Free cash flow (for the six months ended Jun 26, 2022) totaled $14.8 million compared with $100.1 million reported in the prior year period.

During the quarter under review, the company repurchased 452,206 shares with an aggregate cost of $42.8 million. As of Jul 29, the company stated the availability of approximately $329.8 million under its repurchase program.

The company announced a hike in its quarterly dividend payout. PZZA raised its quarterly dividend by 20%, indicating its intention to utilize free cash to boost shareholders’ returns. The company raised the quarterly dividend to 42 cents per share (or $1.68 annually) from the previous payout of 35 cents (or $1.40 annually). The hiked dividend will be paid out on Aug 26, 2022, to shareholders on record as of Aug 15, 2022.

Unit Developments

During the fiscal second quarter, Papa John’s opened two net new restaurants in North America. In the international markets, the company opened 45 net new restaurants. As of Jun 26, the company had a global restaurant count of 5,571, with operations in 49 countries and territories worldwide.

In fiscal 2022, the company anticipates net restaurant growth to be in the range of 280-320 units. It expects its worldwide net unit (from fiscal 2023 through 2025) to grow in the range of 6-8% on an annual basis.

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 Zacks Retail-Wholesale sector are Titan Machinery Inc. TITN, Arcos Dorados Holdings Inc. ARCO and Dollar Tree Inc. DLTR.

Titan Machinery sports a Zacks Rank #1. TITN has a trailing four-quarter earnings surprise of 52.4%, on average. Shares of TITN have increased 6.4% in the past year.

The Zacks Consensus Estimate for Titan Machinery’s 2022 sales and EPS suggests growth of 23.8% and 6.4%, respectively, from the corresponding year-ago period’s levels.

Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth of 34.4%. Shares of the company have increased 30.2% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 25.7% and 120.8%, respectively, from the year-ago period’s levels.

Dollar Tree carries a Zacks Rank #2. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average. The stock has gained 63.9% in the past year.

The Zacks Consensus Estimate for Dollar Tree’s 2022 sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the corresponding year-ago period’s levels.


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