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Papa John's (PZZA) or Domino's (DPZ): Which is More Appetizing?

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Zacks Equity Research
·7 min read
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Even though the pandemic-induced challenges continue to hurt growth prospects on a global scale, restaurant industry players continue to show resiliency by focusing on off-premise business model.

Notably, restauranteurs continue to evolve their operations by primarily engaging in delivery, takeout, drive-thru, catering, meal kits and off-site options such as kiosks as well as food trucks. Moreover, reductions in menu options are being implemented to support the business model.

Meanwhile, companies have resorted to innovations such as contactless and carside delivery to boost sales amid the pandemic. Also, implementation of various digital initiatives has been noted. This includes GPS driver tracking, enhancement of make-line and cut-table technology and AI-enabled forecasting for a better match of demand with capacity. The initiatives are likely to boost speed, accuracy and efficiency, which will help players in the space offer better services to customers.

However, dismal store traffic due to social distancing protocols cannot be ruled out. Also, some dining rooms have been closed again owing to local and state restrictions due to rise in the number of coronavirus cases.

Despite the roadblocks, it is worth noting that the Zacks Retail-Restaurant industry has had a decent run on the bourses in the past year. The industry has rallied 58.2% in the said time frame compared with the S&P 500’s growth of 55.6%.

Leading restaurant companies like Domino's Pizza, Inc. DPZ and Papa John's International, Inc. PZZA have been adopting and deploying strategies to generate profits.

Let’s analyze and find out whether Domino's or Papa John's, both carrying a Zacks Rank #3 (Hold) at present, is better positioned right now.

Price Performance

Papa John's stock has soared 62.3% in the past year, while Domino's shares have gained 14.9%. Shares of Papa John's have benefited from the rollout of technology-driven initiatives, international expansion, menu innovation, operational efficiencies and cost-saving efforts. Also, the company is continually striving to eliminate barriers to expansion in existing international markets and identify new market opportunities.

Earnings History and Projected Growth

Papa John's beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters. However, it has a trailing four-quarter negative surprise of 10%, on average. Meanwhile, Domino's beat the estimates in two of the last four quarters. It has a trailing four-quarter earnings surprise of 12.2%, on average. Papa John's has an impressive long-term earnings growth rate of 15%. The same for Domino's is anticipated to be 12%.


Papa John’s is investing heavily in technology-driven initiatives like digital ordering to boost sales. The company’s online and digital marketing activities have increased significantly in the past several years in response to increasing use of online and mobile web technology. Currently, the company has 100 corporate and franchise restaurants that enable customers to visually track delivery on a map. Moreover, Papa John’s entered into a national partnership with UberEATS and its existing fastest-growing door-to-door delivery service providers DoorDash and Postmates.

Meanwhile, Papa John’s continues to invest in direct customer delivery. In March 2020, the company re-engineered its ordering and delivery process with the launch of no contact delivery. Notably, it drove substantial gains in its satisfaction metrics and delivered seamless customer experience during the second quarter. During fourth-quarter 2020, the company initiated the roll out of its centralized order taking and customer service center – Papa call.

Moreover, the company continues to focus on product introduction to drive growth. Menu innovation like Garlic Parmesan Crust, toasted handheld Papadias and Jalapeno Popper Rolls continues to witness solid popularity among customers, thereby boosting the top line. Backed by better brand positioning, the new products have driven higher ticket and traffic across dayparts without cannibalizing core premium products and complexing operations at other stores. In July 2020, the company in collaboration with Shaquille O'Neal (Papa John's Board member and restaurant owner) launched a new Shaq-a-Roni pizza. In August 2020, the company launched the buffalo chicken Papadia. In December 2020, the company added Epic Stuffed Crust to its menu.

Nonetheless, the company is continually striving to eliminate barriers to expand in existing international markets and identify new market opportunities. Over the next several years, the company plans to increase its international units, a large portion of which will be franchised. During the third quarter of fiscal 2020, the company collaborated with HB Restaurant Group to boost presence in Philadelphia and southern New Jersey market. Under the development agreement, the company will open 49 new stores between 2021 and 2028. We believe re-franchising a large chunk of its system reduces a company’s capital requirements and facilitates earnings per share growth and ROE expansion. Alongside, free cash flow continues to grow, allowing reinvestment for increasing brand recognition and boosting shareholders’ return.

Coming to Domino’s, the company continues to bolster sales through regular limited time offers (LTO). Notably, its remodeling efforts have helped the company gain momentum leading to sales improvement in the past few quarters. The company is on track to convert all of its restaurants to the “Pizza Theater” prototype, which offers a comfy lobby, open-area viewing of the food preparation process and the ability to track carryout orders electronically on a lobby screen. Domino’s remodeling initiative is thus anticipated to continue enhancing its potential as a brand and augment guest experience.

In terms of menu additions, the company rolled out some new products. The company launched new chicken wings with improved sauces on Jul 7, 2020. It also unveiled two new specialty pizzas, namely Cheeseburger pizza and Chicken Taco pizza on Aug 24, 2020. Notably, the items have been witnessing positive customer feedback.

Moreover, the company is committed toward accelerating presence in high-growth international markets to boost business. Many international franchisees continue to generate robust returns. Countries like China, Japan and Germany have been posting solid growth. Meanwhile, markets in India, France, Spain, Mexico, New Zealand and Panama are working diligently to revive operations through store re-openings. Meanwhile, the company continues to focus on supply-chain business to support growth of its franchisees. Despite the pandemic, the company opened supply chain centers in Columbia and South Carolina in March; Edison, New Jersey in September; Katy and Texas in December, 2020. This is likely to drive growth, going forward.

Meanwhile, Domino’s digital loyalty program -— Piece of the Pie Rewards — continues to contribute significantly to traffic gains. The extended ways to order a pizza has positioned Domino’s at the forefront of digital ordering and customer convenience. Moreover, other digital enhancements in terms of make ordering, selecting service methods, paying and tipping were implemented to boost consumer experience. Moreover, the company continues to innovate aggressively across all aspects of its business — including GPS, e-bikes, AI in-store technology, great food and an evolving digital experience. In 2020, the company rolled out GPS driver tracking across its store in the United States.

Our Take

Our comparative analysis shows that Papa John's has an edge over Domino's in terms of share price appreciation and projected EPS growth rate. However, the fundamentals of both the companies look solid. Taking all the factors into account, we believe Papa John's is better positioned than Domino's at the moment.

Key Picks

Some better-ranked stocks in the same space include Darden Restaurants, Inc. DRI, Jack in the Box Inc. JACK and Chuy's Holdings, Inc. CHUY, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Darden 2021 earnings are expected to rise 24.9%.

Jack in the Box has three-five-year earnings per share growth rate of 17%.

Chuy's Holdings has a trailing four-quarter earnings surprise of 126.5%, on average.

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