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Is Papa John's (PZZA) Doomed to Have a Terrible 2023 Too?

2022 has been tough for Papa John's International, Inc. PZZA. The company’s shares have declined 38.2% year to date, compared with the industry’s fall of 9.9%. Inflationary pressures and dismal comps continue to affect the company.

The company, like other industry players, has been facing significant supply-chain challenges and inflation across most commodities and categories. This resulted in cost pressure during third-quarter fiscal 2022, including costs related to strategic staffing initiatives. Challenging macro environments, including softening economic conditions (in the U.K.), rising interest rates, looming European energy crisis and continued COVID-19-related lockdowns in China are concerns.

Can the Stock Stage a Comeback in 2023?

The Zacks Rank #3 (Hold) company’s sales and earnings in fiscal 2023 are expected to witness growth of 4.1% and 12.2% year over year, respectively. The company also has an impressive long-term earnings growth rate of 15%.

The company continues to focus on product introduction to drive growth. 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.

During third-quarter fiscal 2022, the company emphasized on crustless menu innovation with the launch of Papa Bowls and reported solid feedback of the same. Also, it stated benefits from menu platforms comprising Papadias and Epic Stuffed Crust. It also launched a limited-time Pepperoni Crusted Papadia toasted featuring more cheese and pepperoni.

Many of Papa John’s restaurants, located in the international markets like the U.K. and Chile, continue to perform strongly. Optimized restaurant model, brand design enhancements and increased integration with third-party aggregators to boost its accessibility channels have acted as tailwinds.

In recent years, Papa John’s has entered 15 new countries, including Spain, Portugal, Germany, Cambodia, Pakistan, France and Poland. 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.

During third-quarter fiscal 2020, the company collaborated with HB Restaurant Group to boost its presence in Philadelphia and southern New Jersey markets. Under the development agreement, the company will open 49 new stores between 2021 and 2028. Moreover, the company intends to tap growth opportunities in France and Italy.

In August 2021, the company expanded its partnership with Drake Food Service International to open more than 220 Papa John’s restaurants by 2025. This includes more than 170 stores across Latin America, Spain and Portugal.

Drake Food Service also plans to open 50 new restaurants in the U.K. over the next four years. The company already purchased 60 Papa John’s restaurants in London, making it the brand’s largest franchisee in the country. Under the terms of this expanded partnership, Drake Food Service will operate more than 560 Papa John’s restaurants by 2025. In January 2022, the company announced a partnership with FountainVest Partners to open more than 1,350 new stores across South China by 2040.

The aforementioned factors might drive the company’s share price in 2023 if the global economic condition remains favorable.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector are Tecnoglass Inc. TGLS, Wingstop Inc. WING and Chuy's Holdings, Inc. CHUY.

Tecnoglass currently sports a Zacks Rank #1 (Strong Buy). Shares of the company have gained 9.3% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s levels.

Wingstop carries a Zacks Rank #2 (Buy), at present. WING has a long-term earnings growth rate of 12%. Shares of WING have decreased 16% in the past year.

The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.3% and 16.1%, respectively, from the comparable year-ago period’s levels.

Chuy’s Holdings currently carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have declined 4.3% in the past year.

The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.6% and 10.4%, respectively, from the corresponding year-ago period’s levels.

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