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Papa John's (PZZA) Down 0.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Papa John's (PZZA). Shares have lost about 0.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Papa John's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Papa John’s Q1 Earnings Miss Estimates, Decline Y/Y

Papa John’s reported first-quarter 2020 results, wherein earnings and revenues missed the Zacks Consensus Estimate.

Adjusted earnings of 15 cents per share missed the Zacks Consensus Estimate of 40 cents by 62.5%. The bottom line also plunged 21.1% from the year-ago quarter’s reported figure.

Quarterly revenues of $409.9 million missed the consensus mark of $417 million by 1.7%. However, the top line increased 2.9% on a year-over-year basis. The upside can be attributed to positive comparable sales in North America, higher commissary revenues related to increased commodity costs as well as increased marketing fund revenues primarily due to an increase in the national marketing fund contribution rate and higher online revenues.

During the first quarter, Papa John’s opened 16 restaurants in North America and exited 19, with the global restaurant count being 5,378. Currently, the company is operating in 49 countries and territories worldwide.

However, owing to the unprecedented nature of the global crisis, the company has withdrawn its 2020 guidance.

Global Restaurant Sales & Comps

In the first quarter, global restaurant sales moved up 4.3% against the year-ago quarter’s fall of 5.5%. Excluding foreign currency impact, global restaurant sales rose 5.4% against the year-ago quarter’s decline of 3.7%.

Domestic company-owned restaurant comps moved up 6.1% in the reported quarter against a 9% decline in the year-ago quarter.

At North America franchised restaurants, comps rose 5.1% against a decline of 6.1% in first-quarter 2019. Also, comps at system-wide North America restaurants improved 5.3% against a 6.9% decline seen in the year-ago quarter. The company reported its third straight quarter of same-store sales growth in North America.

Comps at system-wide international restaurants were up 2.3% against a decline of 0.1% in the prior-year quarter.

Operating Highlights

Total operating income in the first quarter was $15.5 million compared with $5.5 million in the year-ago quarter. Total costs and expenses amounted to $394.4 million, up 0.4% from the prior-year quarter.

Balance Sheet

As of Mar 29, 2020, cash and cash equivalents totaled $36.4 million compared with $27.9 million as on Dec 29, 2019. Long-term debt was $342.6 million at the end of first-quarter 2020, compared with $347.3 million at 2019-end.

Inventories at the end of the reported quarter increased to $29.8 million from $27.5 million on Dec 29, 2019. Free cash flow at the end of first-quarter 2020 summed $24.4 million compared with $3.1 million in the year-ago quarter.

The company paid out cash dividends worth $10.7 million in first-quarter 2020 and announced second-quarter 2020 cash dividend of approximately $10.7 million. The second-quarter dividend will be payable on May 22, 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 26.13% due to these changes.

VGM Scores

Currently, Papa John's has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Papa John's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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